Both bodies broadly welcomed the amendments introduced by the Financial Conduct Authority (FCA) today, but also highlighted significant catches with the regulation.
The FCA’s changes will allow lenders to conduct simpler affordability assessments for borrowers who are remortgaging for the same value, on the same property and are not in arrears.
However, AMI chief executive Robert Sinclair (pictured) raised some concerns with the approach being taken and warned brokers would not be able to take any short cuts with these customers.
Sinclair told Mortgage Solutions that much of the policy was broadly as expected but his main concern was around the risk relating to mortgage term extension, which the regulator will allow under the changes.
“If they are doing a term extension alongside an execution-only completion I’m not sure that will leave the customer in the right place,” he said.
“While there will have to be disclosures around how much interest they will pay I’m not sure most consumers read any of that small print.
“And therefore, by the FCA’s own admission it is unlikely to have relevance when they want it to in terms of customers reading and understanding that.”
Advice complexity a concern
Sinclair noted that the challenge for the intermediary world was that while the reduced affordability assessment looked simple, borrowers would still require a fully advised process.
“If a customer approaches an intermediary, you can’t simply say well we’re going to put you through a simplified process, because it might well be that we don’t know if they would meet the full criteria of a lender using the full affordability measure,” he said.
“And therefore brokers will have to take them on a fully advised basis looking at all options for them.”
He continued: “The complexity of how to give advice on this is still an area of concern for me, because this is still a paper that focuses on lenders’ affordability assessment, but it is brokers who have to make sure that when they make an application they are likely to pass that assessment.”
Lack of data
The changes are only expected to help a small minority, between 2,000 and 14,000, of the estimated more than 100,000 mortgage prisoners.
Sinclair highlighted that the FCA has not published much about how it got to this number, who these borrowers are and their characteristics.
This was echoed by Building Societies Association (BSA) head of mortgage policy Paul Broadhead who noted the lack of data on the borrowers involved was holding back lender preparations.
“There are still going to be a lot of people that are unable to be helped I suspect, and the reason is we are still waiting for information from FCA on which types of customers are with these unregulated and inactive lenders at the moment,” he told Mortgage Solutions.
“And until we get that it’s still quite difficult for lenders to determine their appetites to them.”
Difficult to measure
Broadhead noted that by opening-up the changed affordability assessment to general remortgaging customers it would be harder for the FCA to account for how many mortgage prisoners have actually been helped.
“It will be quite difficult to answer because the regulator won’t be able to distinguish which ones are true prisoners and which ones are those remortgaging using the modified assessment,” he said.
“So it’s going to be quite difficult to understand how many of the original numbers have truly been helped, but I do think the expansion of the scope is sensible.”
Extend the perimeter
Broadhead also supported the FCA’s call for it to be given wider powers to oversee the whole of the mortgage market
“That’s something we would support because borrowers have ended up in this situation, generally speaking through no fault of their own,” he said.
“They signed up to something with full consumer protection and then that was sold on to somebody else, why should they then not enjoy the same protections as somebody else? That is something the government really does need to address.
“This is the first time the FCA has done this I believe, requesting an extension of the perimeter. To me this situation has gone a stage further and frankly I think they are absolutely right to make that point,” he added.
Implementation group worked
Broadhead suggested smaller building societies were likely to be the first lenders to respond due to their greater flexibility.
“How soon they will go live is difficult to say because we’ve only just got the final rules today,” he continued.
“What’s been quite helpful is having an implementation group made up of trade bodies and lenders throughout the process.
“It’s been quite helpful as enabled us as an industry to shape the regulation and allowed lenders to assess their appetite sooner than they would have been able to. That’s been a really helpful approach from FCA.”
The All Party Parliamentary Group on Fair Business Banking was also supportive of the move, but was disappointed not to see those with arrears included and called on government action.
Chairman of the group Kevin Hollinrake MP said: “It is a significant step forward to see the FCA act to help eligible customers, including those with inactive lenders, switch to take advantage of better rates with active lenders.
“However, the scope of the modified affordability test should be widened to include those customers in arrears as a result of higher payments due to the excessive interest rates they are locked into.
“The government or regulators may have to provide incentives and exemptions from capital risk requirements to facilitate this. Failure to do so risks leaving behind a significant portion of mortgage prisoners,” he added.