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FSA crackdown on cross-subsidy rates

Lenders are braced for the FSA to impose rules proposed in the Miles review that could stop different rates being offered to new and existing customers.

The FSA has confirmed it is looking at whether Professor Miles’s proposals should form part of its treating customers fairly regime and stop lenders cross-subsidising new customers with existing ones.

The suggestion was first mooted in the review of the UK mortgage market by Miles last March.

Since then, the Treasury, the FSA and lenders have been weighing up the implications of his recommendations and it was widely expected that Chancellor Gordon Brown would make a number of proposals from the review in the preBudget report in 2004.

But signals from the FSA show that it will incorporate the proposals into its treating customers fairly proposals. Miles is now on the board of the FSA.

If implemented, the proposals could stop lenders offering cut-price rates to new cli-ents and leaving existing lenders on higher priced deals.

Nationwide Building Society is one of the few societies to offer all rates to all customers and says it would welcome the move.

HBOS, the UK’s biggest mortgage lender, has a segmented range of rates that differ for first-time buyers, existing Halifax account holders, new customers and existing borrowers.

Senior press officer Paul Fincham says: “The differ-entials between the different rates have narrowed. We have moved more that one million customers on to better deals in the last year by reviewing their mortgages.”

FSA spokesman Robin Gordon-Walker says: “We are committed to looking at the use by lenders of cross-subsidy in their mortgage books, by which we mean the different rates they offer different customers. It is an issue for treating customers fairly.”


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