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Brokers hit back at FCA claims over mortgage prisoners

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Brokers have hit out at the FCA’s claim the Mortgage Market Review has not created “mortgage prisoners” locked out of certain parts of the market.

Earlier this week the regulator published two papers on whether the mortgage market was working effectively.

The first was the findings of its responsible lending review post-MMR, while the second was a feedback statement on its call for input on mortgage market competition.

In the responsible lending paper, the FCA says: “We do not find evidence that the rules have prevented firms lending responsibly across particular groups, for example, older borrowers and the self-employed except in one niche area of lending [lifetime mortgage where regular payments are made and then switches to roll up] which we have taken steps to address.”

The regulator says the majority of lenders are waiving affordability assessments where applicable to prevent borrowers being trapped on existing deals.

It adds: “If a case is declined, this is often reassessed by an under-writer, and this could result in the decision being overturned. In a limited number of cases we saw customers had to appeal before the application was reassessed by an underwriter.”

But brokers have disputed the FCA’s findings. Association of Mortgage Intermediaries chief executive Robert Sinclair says: “It is great news the FCA has found the mortgage market is now lending responsibly and there are no issues with mortgage prisoners. This appears at odds with broker experience and that of the renowned consumer champion Martin Lewis, so no doubt the Chancellor will be assured by the FCA there will be no issues when interest rates rise.”

Last week MoneySavingExpert founder Martin Lewis met with Chancellor George Osborne to push him to take action to help mortgage prisoners. Osborne has since written to lenders saying it is “vital” borrowers are able to move cheaper deals.

John Charcol senior technical manager Ray Boulger says: “This is all about perception and reality. It’s all very well for the FCA to say ‘our rules are not stopping lenders doing things we think are sensible’, but actually they are because lenders are worried there will be retrospective action taken against them.

“Lenders have been hit in the past with what they consider retrospective action, such as claims for payment protection insurance, so clearly that does influence their thinking.”

London & Country associate director of communications David Hollingworth says it is clearly going to be harder for people who have taken out mortgages before criteria tightened to negotiate new deals.

He says: “We’ll only really know how many people are struggling and the true extent of the problem once rates rise. By that stage it’s potentially too late so there needs to be more consideration about who exactly is finding life difficult.”

The FCA’s mortgage market findings

On responsible lending:

  • Where lending is affordable, there is no evidence rules have prevented firms lending responsibly across particular groups, for example, older borrowers and the self-employed
  • Most lenders are using the flexibility afforded by FCA rules when dealing with their own existing mortgage customers. However, some firms could be more proactive and consistent when making use of exceptions.

On competition:

  • Consumers face challenges in making effective choices, particularly when it comes to assessing and acting on information about mortgage products
  • Commercial relationships between different players in the sector’s supply chain – in particular the use of panels – might give rise to competition concerns.

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There are 2 comments at the moment, we would love to hear your opinion too.

  1. David Bettley 19th May 2016 at 5:57 pm

    Clients deal – BOE base + 0.79% for next 19 years. Stress test rate applied by Lender under FCA agreed lending terms 7% – case failed affordability – is this treating customers fairly. Underwriter was not empowered to vary terms. There is no motivation for lenders to vary terms if they can hit their lending target without having to help “trapped” borrowers. Beef up customers rights under TCF outcomes – if customer is forced to borrow money at inflated rate and can proof decline by existing lender, make existing Lender cover the customers loss/costs. It would certainly motivate lenders to help existing borrowers. I would suggest it is made retrospective as there appears to be a deliberate policy of at best forcing interest only customers into accepting capital repayment terms to increase repayment of low rate loans or at worst forcing them to forgo the terms by moving to alternate lenders.

  2. It appears that the mortgage market is rapidly becoming as screwed up as the IFA advice market since the FCA applied the MMR. It is hardly surprising that the regulator will find a couple of positives from their “work” on this and spin the living bejesus out of these points without regard to the real problems that exist. I don’t blame the lenders as they have been bitten before with retrospective regs so it is hardly surprising they are taking this stance. Like everything else the FCA and its predecessor do, the idea starts off as a bright idea but by the time it hits the world there are so many unintended consequences (most of which were forecast by those who knew best – but ignored by those who think know better) it is just ludicrous. The FCA should try using their own version of the “sandbox’ they announced to test out their ideas for a year to actually see the devastation it causes before changing the rules for everyone. That way truly only a small number of consumers will be get royally screwed over instead of the huge numbers who get done by the FCA usual stance of we know best and the is what is going happen, regardless of consequences.

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