So it is time for the talking to stop: the Financial Conduct Authority needs to do something about lenders flouting new mortgage affordability tests.
This week we sent a reporter along to the Council of Mortgage Lenders annual conference to hear Linda Woodall, the watchdog’s director of mortgages and consumer lending, speak on the Mortgage Market Review.
From the resulting transcribed speech we had two options for a ‘hook’ on which to peg our write-up: the intervention of the Bank of England to limit lending at high income multiples does not undermine MMR, or the regulator’s continuing unease over the “disappointing” disregard of transitional rules under the regime, to the detriment of customers.
I wasn’t keen on the first option, not least because it is uninspiringly intuitive. Of course the FPC intervention to cool the jets of what was fast becoming a runaway housing market are in accord with an overhaul of rules designed to achieve, well... precisely that.
The problem with the second option is it sounds naggingly familiar. With good reason.
As long ago as April, we reported on adviser concerns that many lenders may be going beyond requirements to conduct more stringent affordability tests as required under the MMR, by ignoring transitional exemptions granted to those porting under existing terms or downsizing their borrowing.
In the wake of drum-beating from the press corps, the FCA has also admirably acknowledged the issue a number of timesWe even had Natwest on the record at the time stating that it officiously treats existing, downsizing customers as new business, many of whom inevitably fail the strict test and face being stranded on a higher standard variable rate or paying hefty exit penalty fees.
Natwest is not alone, as the vitriolic response to a comment I wrote on the subject back then attests.
The nationals have since got involved, with consecutive stories in the Daily Telegraph’s weekend ‘Your Money’ section five months after the new rules came in highlighting the plight of trapped borrowers, including those unable to exercise porting clauses enshrined in their original contract.
In the wake of drum-beating from the press corps, the FCA has also admirably acknowledged the issue a number of times. Lynda Blackwell, head of mortgages, stated during a live FTAdviser debate in September that the regulator was monitoring the practice and reminded lenders of their “responsibility to treat customers fairly”.
Since then, Ms Woodall has made similar murmurings during interviews with other outlets, confirming all the while that the organisation is still in observation mode and has not yet raised the alert level. Then we get these latest comments, again with no suggestion of intervention.
So, yes, not new. But perhaps all the more newsworthy for that very reason - and worth raising again here.
At this point I will proffer my typical caveat that I am a supporter of the tenets of the MMR. I just want to see the rules as agreed applied.
Affordability tests that take into account basic spending habits are sensible; modelling for rate rises is plain common sense. A few anguished tales of intrusive questioning which in truth do not point to any discernable trend aside, the rules and the shackles they’ve put on the sector are appropriate.
But there is no way that these rules should have resulted in people seeking to exercise the provisions promised to them in their contract, or that are actually reducing their borrowing (the most responsible borrower behaviour) should be penalised.
As Ms Blackwell intimated and I will state categorically: this is not and can never be considered treating customers ‘fairly’.
The worst part is, I am consistently and reliably informed that it was the lenders who demanded these transitional exemptions in the first place. That they are now deliberately not applying them and raking in the higher fees that eventuate, displays an invidious avarice on their part.
Maybe there are conversations going on behind closed doors to encourage banks to do better, or maybe not.
More than six months into the new regime, and with such obvious infringement of the basic pillars of our sector’s principles on display, the time for suggestive speeches, nudging and nurdling has surely passed.
