The Financial Conduct Authority (FCA) has proposed changes to how lenders assess whether or not a customer can afford a mortgage, in a move designed to help so-called mortgage prisoners.
In the final report of its Mortgages Market Study, published today, the FCA confirmed its earlier findings that the mortgage market is working well in many respects but falls short of the FCA’s vision in some specific ways. The consultation on new lending rules forms part of a package of remedies designed to help the market work better.
In addition, the remedies package includes seeking to speed up more widespread participation by lenders in innovative tools to help customers more easily identify what mortgages they qualify for.
There is a proposal for the Single Financial Guidance Body (SFGB) to extend its existing retirement adviser directory (currently under the Money Advice Service brand) to include mortgage intermediaries to help customers make a more informed choice of broker.
The FCA is also consulting, in the spring, on proposals to change mortgage advice rules and guidance to help remove potential barriers to innovation.
The regulator will be introducing further, in-depth analysis to understand more about those customers that do not switch mortgage to inform any necessary intervention.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “The market is working well for many with high levels of customer engagement and competition. 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.
“We are particularly concerned about consumers – who are commonly referred to as mortgage prisoners – who are currently unable to switch. 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.”
The FCA has proposed that, for those customers who are up-to-date with their mortgage payments, and seeking to move to a more affordable deal without borrowing more, active lenders will be able to undertake a more proportionate assessment of whether they can afford the new loan.
The regulator is particularly concerned about customers of inactive lenders and entities not authorised for mortgage lending as they are unable to move to a new deal with their existing lender. To ensure these customers are made aware of this change, inactive lenders and administrators of entities not authorised for mortgage lending will be required to review their customer books to identify and contact eligible customers.
Will Hale, CEO of Key, added: “Today’s announcement from the Financial Conduct Authority will come as a relief to the thousands of mortgage prisoners across the UK. While naturally we need to ensure that people can afford their mortgage repayments, common sense is vital and taking a serious look at how we can help people these people – especially those with inactive lenders – to improve their financial situations makes sense.
“However, while the proposed changes to the affordability rules are a positive step forward, it doesn’t replace the need for good quality advice. Managing mortgage repayments are unlikely to be the only issue that these customers face and we need to make sure that they receive the support they need to make the right choices for their circumstances. This is particularly true for older customers who currently have a wide range of options to choose from including downsizing, equity release, later life mortgages and retirement interest-only mortgages.”