Regulatory bodies are not practising what they preach
Alexander Burgess is a director of British Money
I am becoming increasingly concerned about how the Financial Conduct Authority and the Prudential Regulation Authority are failing to financially safeguard first-time buyers and those moving up the property ladder or re-mortgaging their properties.
Under the FCA’s Mortgage Market Review guidelines, lenders are required to undertake stringent affordability tests to assess borrowers’ abilities to repay their mortgages, before funds are released. Why are similar checks not undertaken to assess how repayments will continue to be made if a salary stops?
Out of the 1.2million or more households given lender funding last year, around 96% will have no financial support mechanism to ensure continuity of mortgage payments if an income goes due to redundancy or illness. This is the same income that is so highly-scrutinised prior to the mortgage offer.
I believe stress-testing against income loss is equally important when assessing affordability and I am appalled both regulatory bodies do not consider this a priority. My repeated requests to include financial protection within affordability testing guidelines have been met with ‘I can’t make rules’ or no response at all from representatives of the FCA. In an equally non-committal stance, the PRA advised it is a ‘conduct and not a prudential matter’.
Having surveyed all UK mortgage lenders and with very few exceptions, none have current plans to offer financial protection plans. Is this morally right? It is detrimental to consumers and must be addressed via the FCA or PRA.