The final report of the Financial Conduct Authority’s (FCA) Mortgages Market Study was published earlier this week. We broadly welcomed the report, in which the FCA confirmed its earlier findings that the mortgage market is working well in many respects.
There were some areas where the market falls short of the FCA’s vision in some specific ways and on which it has proposed remedies.
Following the publication of the report, immediate headlines tended to focus on the FCA’s proposals for helping so called ‘mortgage prisoners’ – those customers who are on reversion rates and may be able to save money by switching to a better deal.
Lenders have been working closely with the regulator, responding to the challenge with a voluntary industry-wide agreement which has already seen firms contact over 26,000 customers.
However, the industry agreement does not help those customers of inactive lenders and entities not authorised for mortgage lending.
Thousands of mortgage prisoners remain trapped
They are unable to move to a new deal with their existing lender and cannot meet the affordability rules to move to a new lender.
Therefore, alongside the report, the FCA is consulting on new lending rules which propose 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.
This is encouraging, as is requiring inactive lenders and administrators of entities not authorised for mortgage lending to review their existing customer books to identify and contact eligible customers.
However, even under these proposals, there are thousands more customers with inactive lenders or unregulated owners that the regulated industry would be unable to help.
We have therefore called on the government to work with the FCA to ensure that all customers, regardless of owner, have full regulatory protections to ensure they are treated fairly.
The other remedies in the report include:
- seeking to speed up more widespread participation by lenders in innovative tools to help customers more easily identify what mortgages they qualify for. As UK Finance called for in its consultation response, the FCA has stopped short of proposing any specific intervention in this area and would prefer to see a market-led solution. We believe there will continue to be significant market developments over the coming months which will address the FCA’s concerns.
- 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. This will include additional information such as the number of lenders a broker works with.
- also consulting, in the spring, on proposals to change mortgage advice rules and guidance to help remove potential barriers to innovation. In its consultation response UK Finance said the current guidance makes it difficult for lenders to provide additional information for customers in, for example, a digital environment while still being confident that they are not inadvertently giving advice;
- further, in-depth analysis to understand more about those customers that do not switch mortgage to inform any necessary intervention. The FCA recognises that there is a high rate of switching in the mortgage industry and is not proposing a pricing intervention. In 2018, taking remortgaging and product transfers together, nearly one in five customers switched their mortgage – the same rate as in the energy industry. However, we recognise that a large number of customers don’t switch perhaps because they have a relatively low balance, a short time left on their mortgage, are anticipating a change in circumstances or believe that the effort of switching is not worth the saving they may make. It will be helpful to understand this better and we look forward to seeing the outcome of this research.
The FCA’s mortgages market study has highlighted some positive steps for change to help benefit consumers. There’s still more work to do and we certainly shouldn’t rest on our laurels.
We will continue to work closely with the FCA on the next stages of the mortgage market debate.