The FCA has published the first of its promised consultation paper on mortgage regulation reform. The paper focuses on:
- enabling consumers more easily to discuss options with a firm;
- reducing mortgage terms; and
- enabling access to cheaper products when remortgaging.
The paper notes that all proposals would be supported by the Consumer Duty, but those on reducing mortgage terms and dealing with maturing interest-only mortgages would rely on it as the main standard for firms to apply. The FCA says that, unlike where a firm fails to comply with a specific MCOB Rule, a customer could not bring a private action against the firm for failing to comply with the Duty and neither could the FCA introduce an industry-wide redress scheme. Rather, the consumer would have remedy through the firm or FOS, or through making the FCA aware of poor practice to inform its supervisory and enforcement actions.
The proposals:
- look to address the requirement introduced as part of the Mortgage Market Review which effectively banned execution only mortgages where there was “interactive dialogue” between the firm and the customer – which at the time responded to concerns that customers sometimes thought they were getting advice when they weren’t. In 2020 research showed that consumers were not getting significantly different outcomes whether they took out a mortgage on an advised basis or not, so the FCA changed is rules and guidance to permit more customer interaction before firms were required to give advice and gave firms guidance on how to do this. But firms continue to have low confidence in dealing with customers outside an advised process, and still over 95% of sales are advised. Firms are also not confident that they can deliver the best support for consumers under current requirements – for example where they need to make small changes to documentation over the phone. So the FCA proposes to remove the “interaction trigger” in MCOB 4.8A7R(3) and associated rules and guidance around what Article 53A RAO covers. Customers will no longer have positively to elect an execution-only sale. But firms must also have in place processes to help identify where a customer might need advice or other support in line with the firm’s obligations under the Duty;
- would remove the requirement for a full affordability assessment when a consumer wants to reduce the term of a mortgage. The FCA says many borrowers take out long mortgages with the intention of reducing the term at some point but then perceive the affordability assessment necessary before the reduction would take too long. Firms would instead be able to determine what kind of assessment would be appropriate. The FCA seeks views on the degree to which unaffordable term reductions could increase as a result of this approach and whether any further mitigants are required; and
- taking action to remove the current barriers that prevent customers remortgaging with a different provider at the end of a fixed term. The FCA introduced a “modified affordability assessment” in 2019 intended to help borrowers to move by giving lenders flexibility in assessments, and now proposes to build on this to permit lenders to enter into a new mortgage contract where it is more affordable than either the customer’s current mortgage or a new mortgage product available to that customer from the current lender.
The FCA also plans to retire:
- FG13/7 on interest only mortgages, as it feels the guidance has done its job and the Duty and MCOB continue to require firms to meet the same standards – but it will introduce a new rule and guidance to make it clear that firms must deal fairly with customers whose mortgage terms have expired and not take repossession unless all other resolution attempts have failed; and
- FG24/2 which merely restated what was already in the Handbook about options to support customers in the event of interest rate rises.
The paper includes a lengthy CBA looking at risks and costs for both firms and customers.
The consultation period is very short – with comments due by 4 June and the FCA aims to publish feedback during Q3.