Paul Hunt, Phoebus Software’s chief executive, said that a “stagnation in private equity release transactions” means £2.4trn of cash reserves were available for “buyouts and other investments”.
Consequently, he said that, in the next few months, banks and private equity executives will acquire closed books of mortgage lenders.
Hunt added that mortgage lenders were keen to sell their closed books to “avoid compliance challenges” associated with Consumer Duty.
All closed products, including closed mortgage books, have an implementation deadline for Consumer Duty of 31 July 2024.
At the time when final Consumer Duty guidance was issued, the regulator said that when reviewing closed books, an initial review must be completed, prioritising a review of products or services with a higher risk of consumer harm, and then that firms should incorporate a review of elements of Consumer Duty into “existing and ongoing review cycles”.
The Financial Conduct Authority (FCA) said earlier this year that work to meet the closed book deadline could be even more of a “challenge” than last year’s deadline.
Hunt said that, as of August this year, lenders with closed products and services must have put in place “necessary changes to their business to comply with phase two of Consumer Duty regulations”.
He continued: “The new rules will require a multitude of lenders to completely change their processes and communications with existing borrowers. Some lenders may consider this more trouble than it’s worth.
“It will be particularly challenging for lenders that don’t already have robust and agile servicing capabilities and systems. They will either want to sell on their closed books, outsource to third-party administrators, or migrate fairly sharpish to a Consumer Duty-friendly mortgage servicing platform.”
Upcoming Consumer Duty closed book deadline not as actively discussed
Hunt noted that, while there had been a “great deal of discussion” around the July 2023 Consumer Duty deadline, there seems to have been “little thought” around the impact of Consumer Duty on lenders’ closed books in 2024.
He said: “For some firms, the second stage of Consumer Duty could be even tougher, especially for lenders who have been managing large volumes of closed books efficiently and profitably, who are likely to be reluctant to sell them on.
“The real problem for lenders is that there is probably a fair amount of foreseeable or actual harm in lenders’ back books. Simply accessing the data so they can put the required actions in place will be a serious challenge for many lenders, especially those with legacy systems.
“By July 2024, lenders need to know which borrowers are on which mortgage products, and how susceptible each borrower is. They need to monitor them on an ongoing basis and communicate appropriately. Some lenders just won’t be able to do what’s required of Consumer Duty come July.”
