Outlined in the Financial Conduct Authority’s (FCA’s) Mortgage Rule Review consultation, Liz Syms, chair of the Society of Mortgage Professionals, said extending a light-touch assessment to remortgaging borrowers would be a “welcome adjustment”.
Under the existing rules, remortgaging lenders can only forgo a full affordability assessment if the rate they are offering beats the one the borrower is currently paying.
If the FCA’s proposal proceeds, the modified affordability assessment can also be used if the remortgaging lender offers a cheaper rate than the product transfer deal available from their existing mortgage lender.
It is one of a number of proposals included in the consultation, which closed on 4 June.
One of the more controversial suggestions was the removal of the interaction trigger, which could lead to a rise in execution-only mortgage transactions.
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Syms said: “Currently, many borrowers find remortgaging unnecessarily complicated and costly, resulting in around 83% staying with their existing lender.
“The proposed broadening of MAA eligibility will allow a simpler assessment when a new mortgage is cheaper than the current lender’s best offering. This could substantially boost market competition and enable advisers to demonstrate clear value in navigating customers to more beneficial products.”
Lender assurances and commitment needed
Syms cautioned, however, that advisers would have to closely monitor whether lenders genuinely embraced the flexibility, a concern shared by L&C’s David Hollingworth.
For the proposed expansion to work, Hollingworth said there needed to be broad adoption from lenders, not just one or two taking the opportunity to use a modified affordability assessment for remortgaging.
“You also need clear and obvious markers that will give advisers and their customers the understanding that this will apply to them, which must be robust and not overcomplicated.
“It needs to be as clear as: if XYZ factors are met, then you will be subject to the lighter affordability test.”
Hollingworth says that a poor outcome would be lenders “chopping and changing halfway through”, and further into the process, they start to ask questions.
Like Syms, he sees the adjustment as a positive for brokers.
“By removing as many potential barriers to shopping around properly – for example, the fear that they won’t meet the affordability assessment – and by making it simpler, quicker and straightforward, more people could be encouraged to undertake a broader view of the whole market rather than just the keenest PT on offer,” he said.
Some think borrowers will need more of an incentive than a marginal difference in rate to switch to a new lender, even with the promise of a quick remortgage.
Legal process remains a barrier
Matthew Poole, director of Poole Family Financial, said: “What won’t change is the legal process to move mortgage lenders. A marginal difference in rates and payments could still lead borrowers swaying towards staying with their existing lender, unless there is a decent saving to be had.
“Personally, making the legal process easier to remortgage is what would drive real change to borrowers being more open to remortgaging.”
Be part of the Mortgage Rule Review discussion
A discussion paper launched last month invites stakeholders to share their thoughts on what the future of the mortgage market should look like.
Themes put forward include later life lending, a shake-up of affordability assessments, a simplification of rules for vulnerable borrowers, interest-only borrowing and bridging loan terms as well as ideas around enhanced advice and mandatory equity release qualifications.
A full round-up of the Mortgage Rule Review news can be found here.
Feedback on the discussion paper must be submitted by 19 September.
