UK Finance responds to FCA consultation on mortgage customers and responsible lending rules

UK Finance has today published its response to the Financial Conduct Authority's (FCA) consultation (CP19/14) on proposed changes to responsible lending rules to help eligible mortgage customers switch to a cheaper deal.

Jackie Bennett, Director of Mortgages, UK Finance, commented:

"The regulated mortgage industry wants to help eligible customers with unregulated or inactive lenders switch to a better deal.

"We support the FCA's ambition in its proposals for greater flexibility over affordability assessments and are keen to work closely with the regulator in a joint implementation group to help those firms who want to participate and work towards a common launch date. We have suggested the FCA collects up-to-date information on closed book customers so lenders can understand their circumstances better and develop products that meet their needs.

"We will continue to work with the FCA and government to consider what more could be done to help customers in closed books who will not qualify for a new mortgage under the new proposed rules."

Ends

Notes to editor

<ol><li>
UK Finance is the collective voice for the banking and finance industry. Representing more than 250 firms across the industry, we act to enhance competitiveness, support customers and facilitate innovation.</li>
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UK Finance?s response to the FCA consultation CP19/14 can be found <a href="https://www.ukfinance.org.uk/policy-and-guidance/consultation-responses…;
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UK Finance, the Building Societies Association (BSA) and the Intermediary Mortgage Lenders Association (IMLA) announced a <a href="https://www.ukfinance.org.uk/lenders-help-ineligible-homeowners-tied-re… commitment</a> in July 2018 to help longstanding borrowers on reversion rates with active lenders switch to a new deal. The industry voluntary arrangement led to 26,000 customers of active lenders being offered a lower rate mortgage in 2018.</li>
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The FCA published a <a href="https://www.fca.org.uk/publications/consultation-papers/cp19-14-mortgag…; in March 2019 proposing changes to its responsible lending rules to help more eligible customers, including those with inactive or unregulated lenders, switch to a new deal. The FCA has previously estimated there are another 120,000 customers of firms not authorised to lend who could potentially benefit from switching, and another 20,000 customers who are unable to switch because they hold mortgages with firms that, although still authorised to lend, are no longer active.</li>
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It will be up to each lender to decide whether they want to adopt the new approach, with individual firms making commercial decisions depending on their risk appetite and in line with other regulatory requirements. Given the complex changes that lenders would need to make to their lending policies, underlying systems and staff training, it could take some time before any new products are in place.</li>
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Those customers in closed books unlikely to benefit from the proposed new rules include those with: 
a. an interest-only mortgage and no repayment strategy; 
b. high loan to value (LTV) and negative equity; 
c. current or recent arrears; 
?d. outstanding fees and charges; and/or 
e. a low minimum balance/short remaining term.</li>
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All new customers will need to undergo some income verification for anti-money-laundering purposes.</li>
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The FCA?s final <a href="https://eur01.safelinks.protection.outlook.com/?url=https%3A%2F%2F74n5c… Market Study</a> report found that the mortgage market is, on the whole, working well.</li>
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UK Finance?s latest figures on <a href="https://eur01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.u… product transfers</a> reveal there were a total of 1,189,100 homeowner product transfers in 2018, representing £158.7 billion of mortgage debt refinanced internally. These figures show that customer engagement remains high and the majority of mortgage customers switch to a new deal shortly after their previous deal expires.</li>
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UK Finance?s <a href="https://www.ukfinance.org.uk/press/press-releases/number-interest-only-… figures</a> show that the number of interest-only mortgages has fallen by over half (54 per cent) in the past seven years, from 2.5 million in 2012 to 1.23 million in 2018. This follows an industry-wide commitment by regulated mortgage lenders to contact all interest-only borrowers with loans scheduled to mature before the end of 2020, to ensure they are on track to repay their loans or work out an alternative solution.</li>
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