Through its market study, the Financial Conduct Authority (FCA) called on the industry to help ensure these borrowers are not being treated unfairly.
All the lender trade bodies announced their members’ commitment to doing so.
But reality seems to have struck and in the past few weeks we’ve seen first John Glen MP, the current economic secretary to the Treasury, and then UK Finance stress that not everyone can be helped.
They have turned the focus away from the commitment made by lenders and back towards the government and FCA.
I’m not sure who thought such a commitment would ever be a good idea.
Way back in 2014, under the Mortgage Market Review, special provisions were put in place to allow lenders to take on borrowers who were trapped with other lenders without having to undertake full affordability checks.
But there was good reason why lenders were reluctant to do this: it’s okay when the borrower is on your books and you know something about them, but who’s going to take on a borrower about whom they know nothing other than that they’ve been managing to pay their mortgage in one of the lowest interest rate environments ever?
I was always surprised at the reaction when the Mortgage Credit Directive (MCD) closed the door on this in 2016.
Lenders were not using it anyway so the MCD change made no practical difference.
Then the FCA’s interim market study report emerged last year and the FCA put fresh pressure on the industry to solve the problem.
The FCA in turn has proposed to do its bit by looking through the rules to the customer outcome: if the customer would be paying less under the new deal than they’ve been paying under the old, they can afford it.
No need for affordability checks.
I get the sentiment behind this.
Lenders were perfectly happy to throw caution to the wind and lend to these borrowers in the past.
Those borrowers have kept their side of the bargain by keeping up with their payments, so why shouldn’t lenders now be expected to help them?
Everyone must face the consequences
But is this really the right solution?
Isn’t the hard reality that everyone – regulators, lenders, brokers and borrowers – has to learn the lessons and face up to the consequences of the poor lending and borrowing decisions we saw in the past?
It’s going to take time for the consequences to wash through the system – and maybe we need to let them.
Would the outcome be so bad for these borrowers?
It would be interesting to see the data, but once lenders have properly priced for the risk of taking these borrowers on, I doubt any would be in a position to help.
And, borrowers sitting on closed and unregulated books may not be in such a bad deal after all, given their risk profile.
Accept the hard facts
Can we do more to protect those borrowers whose mortgages were bundled and sold on to unregulated firms?
As long ago as 2012, the FCA and HM Treasury proposed to do exactly this and bring the unregulated purchasers of mortgage books within the scope of regulation.
A change in economic secretary to the Treasury put paid to that. But there’s no reason why it could not be dusted down now and put into effect.
It would be refreshing if we could stop the knee-jerk reactions, politics and public positioning on this.
Maybe we need to accept some hard facts and think more carefully about what delivers a realistic, fair and sensible outcome for the market overall.
Lynda Blackwell is a consultant and ex-mortgage manager of the FCA