MortgagesOct 31 2017

FCA blames Brexit for failing to help mortgage prisoners

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
FCA blames Brexit for failing to help mortgage prisoners

The chief executive of the Financial Conduct Authority has said one of the “depressing things” about Brexit has been the fact it hampered action on mortgage prisoners.

Speaking before the Treasury select committee today (31 October), Andrew Bailey said the issue stems from rules in the European Union’s Mortgage Credit Directive.

He said the FCA and HM Treasury had been close to getting the European Union to address this issue but Britain’s departure from the bloc, and the associated negotiations, has stymied this action.

Mr Bailey said: “There is a peculiarity of European Union law in that respect. If I had to use a non-technical term it is bonkers.

“Let’s say you’ve got a mortgage today and you want to refinance it at a lower cost. You can refinance it in a firm and escape the traps of the EU Mortgage Credit Directive.

“If you go to another lender you have to have an affordability assessment and the interpretation of the directive is that if you fail the test for the new mortgage you can’t move.

“Well that is bonkers because if you fail the new one then by definition you must be failing the current one and the new one must be cheaper than the current one because why else would you be going there?

“Now I have to say this is one of the slightly depressing things about Brexit, I have to be honest with you, and this was very live when I was coming into the FCA, we were reasonably hopeful, and we included the Treasury, that we were going to get the EU to move on this and sort it out.

“It is very difficult in the current world to run a UK-specific argument in Europe.”

There is a peculiarity of European Union law in that respect. If I had to use a non-technical term it is bonkers.Andrew Bailey

Mr Bailey also addressed standard variable rates after being asked about whether these were too high.

The focus of the FCA, he said, was on the differential treatment between borrowers who had been with lenders for longer and those who hadn’t.

Mr Bailey said: “The change in margins on mortgage lending really happened just after 2008 actually so if you go back before the financial crisis there was a pretty stable relationship between Bank of England rates and SVR rates.

“Obviously in 2008 the rate came down to near to zero and quantitative easing came in but the effective rate of financing for many institutions did not come down.

“However, the way I would come at this, and it is why we have picked up the work that the Competition & Markets Authority did and we are doing a lot more work on retail banking, is to come at it from a different angle and it is to say if you look at the relationship between what we tend to call back book and front book, which is what is the pricing for front book customers versus what is the pricing for back book customers in terms of competition, is that an appropriate balance of pricing, even though you can explain it in terms of the firm’s net interest margins.

“Net interest margins have actually been surprisingly constant. That is what firms manage because they have to.”

Mr Bailey said he would “certainly look at” the possibility of a moratorium on penalties towards the end of a fixed rate period.

damian.fantato@ft.com