Financial Conduct Authority  

FCA tackles mortgage prisoners with new rules

FCA tackles mortgage prisoners with new rules

The Financial Conduct Authority has launched its consultation on proposed changes to its responsible lending rules and guidance, in a move to help mortgage prisoners stuck with inactive and unauthorised lenders. 

Alongside the final report of its Mortgages Market Study published this week (March 26), the regulator published a consultation paper setting out plans to reduce barriers faced by consumers who cannot switch to a more affordable mortgage despite being up-to-date with their mortgage payments.

These consumers are predominantly borrowers who took out a mortgage before the financial crisis but are now blocked from switching to better rates due to changes in lending practices.

In a letter sent to Nicky Morgan, chairwoman of the Treasury committee, at the beginning of this year Andrew Bailey, chief executive of the FCA, already said the regulator would consult on changes to its responsible lending rules to help free mortgage prisoners. 

Yesterday (March 26) the FCA suggested amending its rules to give lenders the option to undertake a "modified affordability assessment" for such consumers.

This means they no longer have to abide by certain affordability rules, such as to verify the consumer’s income.

But under the modified assessment lenders must not enter into a new regulated mortgage contract with an eligible consumer unless they can demonstrate that the new mortgage is more affordable than their present one.

The regulator also proposed inactive lenders and administrators acting for unregulated firms should review their customer books to identify eligible customers and highlight the rule changes to them. 

Lenders who use the modified affordability assessment will be required to disclose to consumers the basis on which their affordability has been assessed and provide some additional disclosures about potential risks.

Lenders will also need to flag which mortgages have been sold using the modified affordability assessment when submitting product sales data reports to the regulator.

Christopher Woolard, executive director of strategy and competition at the FCA, said the mortgage market was working well for many, with "high levels" of customer engagement and competition being present. 

He said: "The package of remedies we are taking forward will benefit consumers by encouraging innovation and making it easier for them to find the right mortgage." 

Mr Woolard said the regulator was particularly concerned about mortgage prisoners who are currently unable to switch. 

He said: "That is why we are acting now to help remove potential barriers in our rules. These changes should make it easier for consumers to get a more affordable mortgage."

An industry-wide voluntary agreement was established in July last year in response to the FCA's interim mortgage market study, to allow the 10,000 mortgage prisoners of active lenders to switch to a better deal. 

However, about 120,000 mortgage prisoners are still trapped on a higher interest rate with unauthorised firms and 20,000 mortgage prisoners are believed to be stuck with inactive lenders.

The regulator has previously admitted that the removal of regulatory barriers would not help all mortgage prisoners, as it was up to lenders to offer remortgage opportunities to customers.