The FCA has been carrying out a review of the mortgages market since late 2016. It has published a final report that sets out findings and a vision for the mortgages market as one in which:
- borrowers who can afford a mortgage can choose suitable and good value products and services;
- firms have a culture of treating all customers fairly;
- competition and proportionate regulation combine to empower consumers to make effective choices before taking out, and throughout the life of, a mortgage.
The good news is that overall the FCA found that the mortgage market ‘works well in many respects’. It clearly sees it as very different to how it was before the financial crisis.
The positives the FCA found are:
- consumers largely take out suitable mortgages that they can afford;
- high levels of consumer engagement – currently over three quarters of consumers switch to a new mortgage deal within 6 months of moving onto a reversion rate;
- a wide range of products on offer and apparent competition on headline rates;
- many consumers value the experience and expertise of intermediaries;
- current commercial arrangements between firms, such as commission lenders pay to intermediaries or referral agreements between intermediaries and estate agents or developers, do not appear to result in consumers paying significantly more for their mortgage.
However, concerns remain and the FCA would like to see:
- it to be easier for consumers to find the right mortgage;
- there to be a wider range of tools providing consumers with a choice about the support (including advice) that they receive;
- consumers choosing an intermediary to be able to do so on an informed basis;
- consumers to be able to switch more freely to new deals without undue barriers.
As part of the objective for consumers to find the right mortgage, the FCA has been working with some lenders, intermediaries and trade bodies to develop new tools and models within the market … we look forward to seeing what evolves here.
There is also a proposal for the Money and Pensions Service (the new name for the Single Financial Guidance Body) to develop and host a broker choice tool to help consumers locate an intermediary. Data for the tool will be sourced from the FCA register and voluntarily from intermediaries. The recommended criteria for the tool can be read in Annex 3 of the final report.
Further consultation on responsible lending
Also arising out of the study is a consultation paper (CP19/14) that aims to reduce the barriers for existing borrowers, including ‘mortgage prisoners’, by amending the responsible lending rules.
The proposals are for modifications to the affordability assessment where the customer:
- has a current mortgage;
- is up-to-date with their mortgage payments;
- does not want to borrow more, other than to finance any relevant product fee or arrangement fee for that mortgage;
- is looking to switch to a new mortgage deal on their current property.
The FCA proposes that a lender must not enter into a new contract unless they can demonstrate that the new mortgage is more affordable than the last one.
The consultation also includes changes to lenders disclosing the basis of the affordability assessment if using a modified version and a change to lenders’ reporting to the FCA.
If you wish to comment on the consultation paper the closing date for submission is 26th June. The response form can be found within the link above.
The FCA has confirmed there will be further consultation in Q2 2019.