In response to the Financial Conduct Authority’s (FCA) consultation paper on Responsible Lending (CP 19/14) the trade body stated its concerns over the regulator’s modified affordability assessments.
The FCA’s own initial proposals suggested only between 2,000 and 14,000 of the 500,000 mortgage prisoners might benefit from the changes.
A freedom of information (FOI) request made by Thisismoney in February this year revealed plans were almost finalised to help thousands of mortgage prisoners six years ago, but Sajid Javid, now home secretary but then economic secretary to the Treasury, torpedoed proposed regulation that could have saved trapped borrowers thousands of pounds each.
At the time, the Treasury said Mr Javid and his advisers judged that ‘there was not sufficient evidence of consumer detriment taking place to justify the additional regulation at that time’.
Kate Davies, executive director at IMLA (pictured) said the clear proposals on this issue were welcome, but there was a “great deal of confusion” from lenders and the wider industry about the number of “trapped” mortgage borrowers this will help.
“Our industry must therefore be careful not to unrealistically raise the expectations of borrowers. Proposals such as modified affordability assessments will only support a small number of borrowers who find themselves unable to remortgage onto better deals,” she said.
“IMLA believes that the regulator and government should consider alternative measures, including advanced legislation that was abandoned in 2013, to improve protections for those who remain unable to switch to a cheaper, more suitable mortgage.”
IMLA said the time it will take lenders to adopt modified assessment processes as suggested by the regulator could actually disadvantage trapped borrowers.
Barrier for lenders
The trade body, which represents 19 of the 20 largest UK mortgage lenders, responsible for £230bn of annual lending, said lenders would be ‘unlikely’ to adopt the modified assessment proposals for remortgage borrowers as making systems changes could take months to compete.
Instead, the proposals should only apply to those consumers who are eligible, particularly consumers who have demonstrated their ability to repay their loans by keeping up with current payments and who do not want to borrow more.
It urged the regulator to do far more detailed research into the characteristics of those trapped in their mortgage deals and share the information before reaching a final conclusion.
It added that the regulator and government should consider the arrangements where loan books are sold, assigned or transferred and consider expanding the regulatory perimeter to loan book buyers to protect the affected borrowers.
IMLA has called on the FCA and government to revive legislation, originally set out in a 2009 Treasury Consultation paper, that planned to expand the definition of the regulated activity of administering a regulated mortgage contract.
At the time, the government had identified a negative impact on borrowers regarding the onward sale of mortgage books, but the legislation was dropped in 2013.
The Statement of Practice on the Transfer of Mortgages, published by the Department for Environment in 1989, suggests historical precedence for this alternative support, with the Council of Mortgage Lenders adopting the statement into its Voluntary Mortgage Code until October 2004.