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Treasury expects FCA to implement mortgage prisoner affordability reforms ‘rapidly’

  • 07/06/2019
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Treasury expects FCA to implement mortgage prisoner affordability reforms ‘rapidly’
HM Treasury expects the Financial Conduct Authority (FCA) to introduce its mortgage affordability reforms ‘rapidly – later this year’.


Speaking during a parliamentary debate on mortgage prisoners, MPs from both sides of the house severely criticised the actions of treasury and the FCA in tackling the mortgage prisoners’ situation.

They also called for a halt to sales of loan books to inactive lenders and for an inquiry to be set up into the situation thousands of borrowers had found themselves in through no fault of their own.


Imminent implementation

Economic secretary to the treasury John Glen told MPs that he understood the urgency of the situation, that it had been a priority for him, and he was pushing the regulator to make its reforms quickly.

Glen said: “I recognise the frustration about the rapidity of the changes and I want to set out now where they are at and what we can expect in the coming weeks.

“The consultation for these changes will run until the end of this month and I then expect the FCA to implement these changes rapidly—later this year.”

He added: “I recognise the urgency associated with securing this solution, and I am urgently working to ensure that the FCA delivers on both what it wants to deliver and what we have asked it to deliver.”

When questioned about the outcome of the consultation itself, Glen responded: “As I have tried to set out, I am not the arbiter of this specific issue, and it would be wrong for me to be drawn into the outcome before the consultation has concluded.

“That is imminent, however, as is the implementation of the solution.”


‘Highest price at any price’

The debate raised serious criticism about how Treasury and inactive lenders had acted in not supporting the borrowers of now closed lenders.

Charlie Elphicke, Conservative MP for Dover who called the debate, said treasury needed to take responsibility for its part in the situation.

“The treasury’s UK asset resolution division has been selling off Northern Rock’s loan book to funds such as Cerberus. The instruction seems to have been to get the highest price at any price,” he said.

Adding: “There is real concern that the government could be facilitating the creation of more mortgage prisoners.

“When selling these books, the treasury should be making sure there are the proper protections so that borrowers do not unfairly lose out.

“It is wrong for the treasury to pursue the highest amount of cash at the expense of vulnerable borrowers who have been placed in a worse position than otherwise would have been the case.”

This was echoed by Labour MP for Blackpool South Gordon Marsden said: “In my view, taken from whatever I have been able to glean from the numerous written questions that I have put to the treasury, there has not been proper due diligence throughout this process.

“Right from the beginning, this process was flawed and took little account of the position of the people we are talking about.”


Changes to sale terms

Responding to these concerns Glen said that it was “regrettable” that no “reasonable bids from active lenders” had been received, with feedback suggesting there was “limited appetite for these loans”.

He also revealed that treasury had made changes to its latest sale to Citi Group to ensure that future rate rises are in line with the rates charged by the largest active lenders.

“This means that a customer will be treated broadly the same as if their mortgage was with an active lender, with payments in accordance with their original contract terms,” he added.


FCA will ‘wriggle out of this’

Elphicke noted that the FCA proposals only give lenders the option to apply the modified assessment and does not propose to make them mandatory.​

Labour MP for Bethnal Green and Bow Rushanara Ali also targeted the FCA specifically, saying the reality was that “the FCA has not acted—it has been too slow”.

“I appeal to the Minister to ensure that the change in the affordability test from an absolute one to a relative one is meaningful.

“The danger is that the FCA will wriggle out of this—frankly, the FCA has been utterly ​complacent, and it should not have taken so long.”


Tighter lender regulation

Several MPs called for an inquiry into the whole situation with the results to be published publicly and for tighter overall regulation of the mortgage market.

However Glen did not respond to these issues.

Elphicke concluded by welcoming Glen’s as a positive step but feared that might not be enough.

“The mood of the house suggests that the behaviour of some of these vulture funds is such that the protections that my honourable friend claims are in place are not necessarily good enough and that a full mortgage regulation should be held by the government as a backstop, to be brought forward should the industry not mend its ways and give freedom to the mortgage prisoners.”

The FCA told Mortgage Solutions that its intention had always been to publish the final rules this year but did not give any further detail on the timescale.

It also did not further address concerns about the changes not being mandatory, instead reiterating its original consultation point that lending should be a commercial decision.


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