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Consumer panel calls for new FSA rule to protect ‘mortgage prisoners’

The Financial Services Consumer Panel has called for a new rule to protect borrowers who are being hit by the recent hikes in standard variable rates.

The FSCP has published its response to the latest mortgage market review consultation today.

It calls on the FSA to do more to tackle potential detriment faced by so-called “mortgage prisoners”, borrowers who are left unable to exit their current mortgage due to factors such as a high loan-to-value, negative equity, or the contraction in the interest-only market.

The FSCP says the regulator needs to strengthen its transitional arrangements to protect borrowers where their current mortgages may fall foul of the new proposed rules under the MMR.

It is concerned about borrowers who have been hit by the recent SVR increases from the Co-operative Bank, Halifax, Bank of Ireland, and Clydesdale and Yorkshire Banks, and says the FSA should introduce a new rule specifically to protect borrowers affected by SVR increases.

It is has also said the FSA should not introduce the new responsible lending requirements until the housing market has recovered, and that the FSA should be able to demonstrate that consumers will not be harmed by prompt implementation.

The panel says: “The potential for the MMR’s proposals to further restrain lending at a time when underwriting standards are already tight would be detrimental to consumers.”

FSCP MMR working group chair Mike Dailly (pictured) says: “We think a specific rule is necessary to protect these mortgage prisoners to ensure they are not unfairly treated by reason of their inability to access alternative or competitive mortgage products.

“First, the new rule would have to define what mortgage prisoners are, which the FSA has not done yet. It would also have to include some provision that says there is a prohibition on lenders to treat those mortgage prisoners less favourably than other customers who are not trapped. We think a rule like that, coupled with treating customers fairly, would give the FSA enough to protect these consumers.”

The FSCP wants this rule created and implemented immediately.

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Becoming a headcase IFA 3rd April 2012 at 11:29 am

    “It is has also said the FSA should not introduce the new responsible lending requirements until the housing market has recovered”.

    What would they regard as a recovery? House prices are still too high.

  2. I agree, but, there is a massive problem right now that will become a disaster in the future if not resolved.

    The FSA, through not clarifying its proposals, has managed to cause sheer panic amongst lenders. It seems to be the reason that they are taking draconian decisions about interest-only and lending into retirement.

    Many responses to the original CP warned about how dangerous the proposals were, and we are now seeing total chaos as a result.

    The regulator actually needs to send a clear message to lenders that TCF is still alive and is more important than lender paranoia about retrospective action by the FSA.

  3. Why don’t we just abandon the free market and let everyone do whatever they want, and the State picks up the cost.
    Nobody need take responsibility for anything they do – and the regulators can keep changing the rules every 10 days to cope with the latest fetish knowing no-one will ever suffer.
    Do these people even engage their brains before opening their mouths

  4. Banks are just profiteering from people who are stuck with them, they dont have to observe TCF in any shape or form, its unbelievable what the FSA will let them get away with.

  5. People ‘trapped’ into interest only mortgages at high loan to value should have been given an illustration of possable costs once their deal came to an end. For cases over 4 years old, the SVR was a lot higher than it is now, therefore affordability should not be a huge issue for the majority.
    To transfer the risk of this type of loan to another lender at a better rate seems like pye in the sky, and using regulation to do it seems impractical.
    If brokers and lenders had not facilitated a bubble over the last ten years in the housing market, prices might be more sensible, loans would have some sort of a repayment plan, and individuals may not have over borrowed.
    I wonder how many brokers gave advice not to take on the loan their clients are trapped in now!

  6. Wherever the FSA goes, Chaos follows.
    @Stuart Duncan
    TCF is More important than retrospective FSA action?
    Who are you kidding?

  7. I couldn’t agree more with the FSCP on this

    The so called ‘interest only ticking time bomb’ and the wider demonisation of interest only has been an interesting arising from the MMR CP process. Yes there is a problem for some in this area, but it pales into insignificance when compared to the ‘ticking nuclear bomb of mortgage prisoners.’

    The MMR CP is good in many ways, but the late transitional provisions that were added are I am afraid wholl inadequate to protect vulnerable consumers.

    FSCP highlights a few lenders who have increased SVR, just wait until the explosion when BOEBR rises and consumers don’t have the ability to vote against high interest rates with their feet – especially pertinent given the record levels (in recent history) of borrowers currently sat on lenders low SVR’s.

    Some degree of compulsion with regards to applying Transitional Provisions to pre MMR customers is needed, without that lenders will be able to do what they like, safe in their knowledge that their captives have no option but to cough up – this aspect really does need further thought and work from FSA

  8. … and when these borrowers ‘benefit’ from a hike in house prices, then I trust the same FSA will impose another rule to equalise any effect of the first rule that FSCP want put in place….

    Sounds more like a Marx Brothers movie script.. ……the party of the first part……

    Oooops just lost a fiver on the 4.30.. can I have my money back please….

    Seems we can electronically gamble away to our hearts content and have payday loans with interest rates of 2000%…….. crazy… sorry but some things in life are a chance – take responsibility….. 🙁

    … time for my medication…..

  9. If anyone thinks the FSA will do anything that financially impedes the banks then you need to be in a secure unit.

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