Lenders have advised the Financial Conduct Authority that its proposed changes to mortgage lending rules could be at odds with other regulation and spark more problems in the future.
Trade body UK Finance, together with the Building Society Association, both raised several key issues in their response to the FCA’s consultation on the proposed changes which ended yesterday (June 26).
The FCA launched the consultation earlier this year in a move to help mortgage prisoners stuck with inactive and unauthorised lenders.
It proposed amending its rules to give lenders the option to undertake a "modified affordability assessment" for such mortgage prisoners — borrowers who are blocked from switching to better rates — so they would no longer have to abide by certain affordability rules.
In the trade body’s response, UK Finance told the regulator the changes could be difficult to conduct in the current regulatory environment.
It sought reassurances from the Bank of England’s Financial Policy Committee and Prudential Regulatory Authority that the central bank was aware and happy with the potential changes in the context of the PRA’s 4.49 times income to lending ratio limit.
UK Finance also pointed out that lenders would have to assess their capital requirements against PRA rules and guidance and ensure that their lending matched the risk weightings they had reported.
On top of this, the trady body listed concerns that the Financial Ombudsman Service and claims management companies could, in the future, claim that disallowing aspects of an affordability assessment was “not responsible lending” and uphold claims against the lender.
Other potential future problems raised by UK Finance included an impact on the availability of other mortgages as mortgage prisoners on interest only policies were capital intensive.
This, the trade body warned, could limit the availability of policies for first-time buyers.
On top of this, UK Finance said some lenders were concerned that making significant changes to customer protection during a low interest rate period could result in poor outcomes for some consumers in the future.
In their responses both UK Finance and the BSA agreed the lack of information about consumers who were stuck on closed loan books — those who have been sold to inactive or unauthorised lenders — was hindering the industry’s ability to help them.
The BSA wrote: “The challenge is that there is virtually no information about the mortgages, the borrowers or the interest rates being charged in these books is currently available.
“Data to profile these mortgages is essential for the process to move forward and lenders to assess what is possible.”
UK Finance went one step further and said as the industry was unaware of the type of mortgages the borrowers had taken out or their credit scores, it was unable to confirm customers would be able to switch to a better rate even within the new rules.
Consumers on interest-only products, those with high loan-to-value mortgages or customers with bad credit scores will often get charged a higher amount on interest on a policy.