The FCA has set out new rules through its policy statement PS19-27, that are designed to remove the barriers that prevent some mortgage customers from finding a cheaper mortgage deal.
The new rules will allow lenders to use a a more relaxed affordability assessment for customers who meet certain criteria, such as being up-to-date with payments under their existing mortgage and not looking to move house, or borrow more than their current mortgage. One of the key impacts of this is that it will make finance available to mortgage prisoners.
A mortgage prisoner is someone who has become trapped on a variable rate mortgage with no hope of being offered a ‘deal’ due to their circumstances; this could be due to their employment/income situation or because they have no equity in the home.
The regulator is keen to help remove the potential barriers of switching to a more affordable mortgage by amending their responsible lending rules and guidance. In summary, these rule changes now mean that:
- mortgage lenders can choose to carry out a modified affordability assessment (where the customer:
- has a current mortgage; and
- is up to date with their mortgage payments; and
- does not want to borrow more, other than to finance any relevant product,arrangement or intermediary fee for that mortgage; and
- is looking to switch to a new mortgage deal on their current property
In addition to this, the new rules mean:
- inactive lenders, and administrators acting for unregulated entities, must review their customer books and develop and implement a communication strategy for relevant borrowers which will include contacting consumers to highlight the rule changes, that they may be able to switch as a result of the rule changes and directing them to relevant information
- mortgage lenders using the modified assessment must tell customers the basis on which their affordability has been assessed and provide additional disclosures about potential risks
- mortgage lenders are required to report which sales have involved the modified assessment when they submit Product Sales Data (PSD) to the FCA
These new rules come into force with immediate effect.
Trevor Irons, owner of MortgageAbility, says: “There is a great deal of sense in these new rules and it is good to see the regulator take this pragmatic approach to make provisions to help the hundreds of thousands of borrowers trapped on their current, expensive loan arrangements. That said these new provisions are long overdue and it is now down to the broker community to work hard to engage with these unfortunate borrowers to get them on a better deal as soon as possible.”