Changes to mortgage rules can deliver good customer outcomes and maintain healthy competition – Resnick

For example, because the way people work has changed significantly over the last decade, the regulator is consulting on changes to how variable and irregular incomes are treated. Borrowers are keeping their mortgages for longer and therefore may benefit from more flexibility, so the FCA also wants to overhaul payment options such as interest-only and part-and-part mortgages, along with retirement interest-only (RIO) mortgages for older customers.

Announcing the consultation, Emad Aladhal, the FCA’s director of retail banking, said: “We want to give mortgage lenders the flexibility to take a rounded view of someone’s finances – so they can offer a mortgage that fits real people’s real lives, not a standard template.”

This is music to the ears of a lender like Afin Bank and the brokers we work with, because we see the impact of mainstream lenders rejecting borrowers who do not fit neatly into a tick box approach to lending, leaving a whole swathe of under-served customers.

However, there are a couple of areas in the FCA’s review that need careful consideration to ensure they deliver the outcomes required while continuing to ensure competition and innovation in the market.

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Consideration is needed

I welcome the proposed shift from detailed prescriptive rules towards a proportionate, outcomes-focused and Consumer Duty-led approach, but this may reduce the take-up by risk-averse firms that are more comfortable with the prescriptive rules.

Of course, this could also mean that bigger lenders may relax their approach to some borrowers, but it is important that people continue to have choice through a range of firms providing products to support customers’ needs and deliver positive outcomes.

Last year, Afin Bank started offering mortgages to foreign nationals in the UK, a segment that was significantly under-served. Within a few months, over a dozen lenders had tweaked their criteria and were also targeting foreign workers.

However, they still were not helping borrowers with thin credit histories, limited time in the UK or gifted deposits. So, lenders like us are still needed to provide options for cases that other lenders can’t or won’t support.

And that’s the great thing about the UK mortgage market – it is highly competitive, innovative and responsive to evolving customer needs.

But let’s not forget the UK mortgage market is still dominated by high street lenders, and in recent years, we have also seen a number of companies leave the market or be acquired by larger providers, which clearly reduces choice.

I hope the unintended consequence of the FCA’s proposed changes does not result in less competition in the market, either through larger lenders playing a more active role or firms needing to take greater risk to deliver the returns they need to remain in the market.

We welcome the FCA’s proposals, but we must remember that good customer outcomes depend on a healthy, competitive and customer-focused mortgage market.