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FCA warns lenders are ‘abusing the back book’ with rate hikes

Martin Wheatley BBA Conference 2012 480
FCA chief executive designate Martin Wheatley

Financial Conduct Authority chief executive designate Martin Wheatley says the regulator is concerned about lenders “abusing their back book” of borrowers by increasing mortgage rates.

The FSA will publish its retail conduct risk outlook on Monday which will set out the emerging areas of concern and troublespots the regulator is anticipating over the next year.

Speaking at a briefing on the FCA in Canary Wharf today, Wheatley said one of the areas of concern the risk outlook will highlight is around lenders that impose higher charges on existing borrowers as profitability is hit by the difficult lending market.

He said: “We are particularly worried in the mortgage space that in a low interest rate environment the gap for lenders [between rates paid to savers and rates charged to borrowers] makes it a very difficult market to be profitable in.

“One of our concerns is ‘abuse of the back book’ if I can call it that, so where you have got locked or trapped customers, that fees are being raised in inappropriate ways. Where firms’ business models are under pressure, and frankly lots of business models are under pressure for all sorts of reasons, there is a risk people go chasing profitability through pushing unsuitable products.”

Wheatley said the concerns were common to other sectors as well as the mortgage market.

Last month Bank of Ireland wrote to 13,500 buy-to-let and residential customers on tracker mortgages to warn them of plans to more than double the base rate differential it charges. Treasury select committee chair Andrew Tyrie has written to Wheatley raising concerns about the increase and questioning whether it amounts to misselling.


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. Right, so they acknowledge the issue, but what are they actually going to DO about it?????

  2. Can’t beleive they have only just noticed, it’s been going on for months Abbey rate to new borrowers 2.99% best rate to existing borrowers 4.64%. They know people can’t go anywhere because of reduced property prices, salary squeezes or impaired credit history so they charge what they like, and they are not the only lender

  3. Like many, I welcome some of the constructive statements made recently by Martin Wheatley, but this is one of the unintended consequences of MMR and other regulator interference in the market.

    So many are now imprisoned by loan-to-value restrictions and by criteria changes such as the near-blacklisting of interest-only that it is hardly surprising that the more cynical of the banks were always going to ignore TCF when it comes to making money.

    I personally see the main issues with Bank of Ireland as being their pretence to be the Post Office and their cynical use of that position to protect themselves in the past.

  4. If he put his glasses on correctly he’d see this has been going on for years, even despite TCF!!

    What was TCF again?

    Should have gone to Specsavers.

  5. Its endemic throughout the city, the service industries and energy suppliers.
    When you see a widow with no internet access paying £1,000 per year for house insurance to the same firm for years, with an internet quote of £280 when queried from the same company, thats abusing the back book.
    When companies raise fees for older pension plans with little money in them, thats abusing the back book.
    When the big energy suppliers have all sorts of deals for everyone else but the old standard tarrif is the dearest, thats abusing the back book.
    Martin, you have a huge job to do. Cleaning up the ethics of big business is just a start. You have to swoop down on the fraudulent. Dealing with the less compitent can wait, they do little harm.,

  6. It seems the more transparent everything gets, and the more customers are treated fairly, and the more the regulator jumps in to make sure everything’s ticking along as it should, the more expensive it all gets for the man in the street.

    Ah well, one of life’s little connundrums I suppose.

  7. Jolly Green Giant 22nd March 2013 at 3:40 pm

    Santander have recently been offering a rate of 2.99% fixed for new client remortgages up to 60% LTVwith no Fee.

    Yet an existing borrower who finishes a deal is only offered 2 yr @ 4.49% with £699 fee.

    TCF my A—! The FSA should come down on these lenders like a ton of bricks, robbing B——s!!

  8. This is a BIG issue and getting bigger by the minute !

    Abbey (Santander) are the worst culprits – thing is FSA know about them but choose not to act claiming it is their commercial right.

    So I ask myself what was MMR all about then ?

    Particularly that bit about mortgage prisoners and price fixing/gouging being a potential breach of TCF ?

    Charging existing customers (particularly Interest Only) unfairly ?

    Re-underwriting and/or Re-valuing (using auto valuation systems) existing customers coming to the end of a deal ?

    MMR – yet another hugely expensive waste of time, effort and other people’s money !

    FCA will do something about it ? I have my doubts !!

  9. Another jobsworth review

  10. “When you see a widow with no internet access paying £1,000 per year for house insurance to the same firm for years, with an internet quote of £280 when queried from the same company, thats abusing the back book.”

    No, that’s just overcharging. No different from being charged £12 for a CD from a high street shop that you can get for £4 off Amazon.

    Agree with the general principle though.

  11. Off course if the regulator released the pressure on lenders – increased and implemented to cover up for the lack of competent regulation pre 2008 – then lenders might themselves ease up and lend at higher LTV’s , chill out a bit about Interest only and re-stimulate the housing market again.

    BUT we don’t want that because house prices may go up again, income multiples fly out the window, poor underwriting decisions come to the for again.

    Oh what a mess, who do we blame, who will save us from ourselves, regulators, banks, politicians and the media.

    Anyway time to go down the pub as one will find lots of free and valuable advice there.

  12. @ Sam Jones – What are they going to do about it? Wait till it’s on Panorama, then levy what look like eye watering 7 figure fines, which fines are in fact a fraction of the money the lenders will have made by then.

  13. This happens in all walks of life – existing members often pay for the discounts offered to new joiners. Sports clubs, motoring clubs, insurance companies. The FCA seem to think that what is quite acceptable in one walk of life is not acceptable in financial services. At the end of the day, increasing costs and capital adequacy means that someone has to pay and for large insurance and mortgage companies it is usually existing customers.
    Rising capital adequacy requirements from next year means we are charging our clients more – reflected in the on-going service charge if you like.

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