The FCA has hit out at lenders for failing to use the transitional arrangements it introduced under the Mortgage Market Review to waive affordability checks for existing borrowers.
The regulator says this failure has led to borrowers being kept on more expensive standard variable rates.
Speaking at the Financial Services Expo in Manchester last week, FCA mortgage and mutuals sector manager Lynda Blackwell told brokers that transitional provisions had been put in place under the MMR that do not require lenders to carry out an affordability assessment on product switches where no additional money is being borrowed.
The transitional arrangements apply when borrowers do not increase the mortgage amount and have a good payment history.
The original intention of the transitional arrangements was to help existing borrowers who had become unfairly trapped with their lender as a result of MMR rules that were
introduced after they had committed to a mortgage. Without the transitional arrangements, many existing borrowers could have been prevented from moving or transferring to a better deal.
But Blackwell said that despite the transitional rules, existing borrowers are still losing out. She said the FCA has heard of cases where borrowers are being refused the option of moving to a fixed rate on affordability grounds and are then having to remain on the lender’s more expensive SVR.
She says: “That is not what the MMR says. It is disappointing to see this happening because lenders have wanted flexibility with the transitional arrangements.
“In the future, it would be really good to see lenders approaching this in the spirit intended and using the transitional provisions to help out those borrowers who need to move home and who want a better rate but who find themselves trapped because of tighter criteria and stricter affordability checks.”
ADVISER VIEW: Tom Cleary
“This is a real shame because transitional arrangements are a fundamental part of the Mortgage Market Review. The new rules were designed to help mortgage prisoners, not create new ones. There have been cases I have seen where clients have not been able to take advantage of the transitional arrangements as they should have and that has to be seen as a failing of the MMR.”
Tom Cleary is manager at Start Financial Services
ADVISER VIEW: Jonathan Clark
“We have seen a lot of these cases and this is something the MMR is meant to have addressed. It appears as though lenders themselves do not understand what they can and cannot do, which may be a fault of the FCA. It is something that needs to be addressed because there is a specific tool for helping these borrowers and it is not being used properly.”
Jonathan Clark is mortgage partner at Chadney Bulgin