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.