FCA wants more innovation to help mortgage prisoners

Michael Lloyd

May 4, 2018

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The FCA has pledged to help ‘mortgage prisoners’, the longstanding borrowers who are currently unable to switch to a better deal.

This comes after its interim report into the mortgage market found a number of longstanding customers would benefit from switching away from a reversion rate but cannot, despite being up-to-date with payments.

Most took out a mortgage before the financial crisis.

Although competition in the mortgage market is working well for many people, a significant minority of customers (around 30%) fail to find the cheapest mortgage for them

Charles McDowell, Aldermore’s commercial director, mortgages, said: “We are pleased to see the subject of reversion rates and mortgage prisoners being one of the areas of focus within the FCA’s review and wholeheartedly agree this needs to be investigated further.

“In order to begin to resolve this issue, we believe the industry needs to build trust and engage with consumers. The consumer often falls victim to a lack of communication and opacity of information.

“There needs to be better communication from both the broker and lender; however we recognise that the broker often has the deeper relationship with the borrower.

“We have seen the likes of the self-employed struggle because they do not fit the norm, and the industry needs to consider consumers’ individual circumstances before refusing a remortgage application. We look forward to working closely with the regulator in the next phase of their review.”

The FCA proposes making it easier for consumers, at an early stage, to identify for which mortgage products they qualify, to assess and compare those products and, ultimately, to take out a mortgage.

The FCA recommends removing barriers to innovation in the sale of mortgages, including those due to aspects of FCA advice rules and guidance.

They want to make it easier for consumers to assess the strengths of different mortgage brokers. The FCA intends to work with the broker sector to develop metrics to help consumers compare brokers.

It wants to help for certain longstanding borrowers who cannot switch. The FCA intends to explore options to help these customers, for example an industry-wide agreement to approve applications for a new mortgage deal from existing customers whose most recent mortgage was taken out before the financial crisis and who are up-to-date with payments.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “The mortgage market is one of the largest financial markets in the UK and there have been significant changes to the market since the financial crisis in order to ensure that we do not return to the poor practices of the past.

“For many the market is working well with high levels of consumer engagement. However, we believe that things could work better with more innovative tools to help consumers.

“There are also a number of long-standing borrowers that have kept up-to-date with their mortgage repayments but are unable to get a new mortgage deal; we want to explore ways that we, and the industry, can help them.”

Gemma Harle, managing director of Intrinsic’s mortgage network, said: “A major theme of the interim study and its findings is more access to information for consumers. This can only be a good thing and will mean more informed decisions.

“With technological advances creating such tools should be straight forward. But will require the full engagement from across the industry and specifically lenders in sharing more information on their lending criteria.

“It is right that mortgage prisoners are taken into consideration. The mortgage market has advanced substantially since pre financial crisis and customers should not be locked into products that may no longer be suitable.

“The concern is that the information the regulator is using may now be out of date. The Mortgage Market Study has been a long time coming, first pitted in 2015, with a call to evidence in 2016.”

The FCA is consulting on its interim findings and proposed remedies. It intends to publish a final report around the end of the year and will consult on any specific changes required to its rules.

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