Views on the efficacy of regulation are mixed (to say the least) among advisers, but surely we can all agree that where rules have been drafted they should be followed.
This is especially the case where rules have been drafted to prevent cumbersome interpretation leading to unintended consequences for customers.
And whatever the specifics, the Financial Conduct Authority always has recourse to its Treating Customers Fairly principles to ensure clients are not left worse off due to capricious implementation on the part of providers.
It’s time, then, that the regulator started to get tough with lenders over their interpretation of the commendably nuanced package of mortgage affordability rules, introduced as part of the Mortgage Market Review.
To recap: lenders must undertake tougher assessments, including at least a basic review of borrower income and expenditure and ‘stress test’ interest rate rises, but under ‘transitional rules’ they can avoid doing so where existing homeowners are ‘porting’ or otherwise not increasing borrowing.
Fine in theory, but in practice lenders are often going through the rigorous tests anyway, and predictably buyers from a bygone era are falling short.
Clauses in contracts promising portability are being flouted; mortgage holders are being faced with hefty exit fees or expensive alternative rates when they want to reduce their debt and pose less risk.
FTAdviser raised this issue as the new rules were coming into effect in April, when Natwest admitted it was one - although by no means the only one - that was over-interpreting rules.
Reviewing this weekend’s money pages it is clear the issue has not gone away.
The Sunday Telegraph followed up a story last week on a retired couple that have been refused their contractually-guaranteed option to port their mortgage with further tales of woe, saying it has been “inundated with emails and letters” from trapped customers.
Natwest, Co-op Bank and Barclays are all highlighted in the piece, with the latter singled out in particular due to being cited in half of all complaints to the paper and as the only one that hasn’t admitted it is in the wrong.
A spokesman outlined the bank’s stance: “When a customer moves home, the existing mortgage secured on their existing property is redeemed in full, and a new mortgage contract established. Customers must qualify for a new mortgage in line with our lending policy.”
We recently held an engaging MMR debate, including the FCA’s mortgages head Lynda Woodall, during which she acknowledged these concerns and stated the regulator was disappointed “that some lenders are not approaching our rules in the spirit that they were intended”.
She also raised the spectre of TCF: “Lenders need to take care not to be too process-led. This is something we will keep under review and we will intervene in cases where consumers are not being treated fairly.”
Ms Woodall’s words were strong, fair and absolutely right. Now it is time for actions to back them up.
