Speaking at the Financial Services Expo in Manchester yesterday, mortgages and mutuals sector manager at the FCA Blackwell said: “We look at some of the questions being asked and wonder why?”
Blackwell went on to highlight three expenditure areas lenders must include in their detailed look at borrowers’ affordability – contractual payments, basic essentials and basic quality of living costs – but said beyond this “it’s entirely up to the lender what they ask the borrower about their expenditure”.
The regulator said more of a common sense approach needs to be applied in three further areas, including specialist lending. These include product switching if lenders are keeping borrowers on more expensive SVR rates when they could be moved to a cheaper fixed rate.
She commented: “It’s too easy to take advantage of your existing back book. Existing borrowers should not be unfairly prejudiced just because they are trapped. We would like lenders to follow the spirit of the rules but it’s difficult to do anything if they don’t.”
On lending into retirement, she said: “There is nothing in the MMR which prevents lending into retirement providing the customer can prove affordability.”
She suggested that lenders were putting a cut-off on the maximum age of a borrower at 75 years old because “[they] often have very automated systems and it’s easier to put in age 75 which sets a line in the sand rather than underwriting a case”.
Blackwell also said there was a growing need for product innovation in the lending into retirement space that would bridge the gap between the end of the residential mortgage term and products such as equity release.
Blackwell also highlighted the FCA’s concerns about smaller lenders, particularly those outside the top six, moving into potentially higher risk sectors like bridging or secured loans.
However, she said “Overall things seem to have gone as the market expected. There have been some IT glitches with some firms faring much better than others. The world has kept turning.”
She added: “Things [the MMR rules] haven’t really changed that much.”
Blackwell also hinted at a more comprehensive review of consumer credit usage, including secured lending and credit cards.
She expressly outlined the FCA’s concern that a borrower is able to secure a mortgage, passing all the affordability checks, but after gaining the finance they can also take out credit cards, second-charges and other types of credit that “increase the debt levels massively and the mortgage implodes”.
