The financial regulator the Financial Conduct Authority (FCA) is looking at ways it can make the mortgage market more accessible, with a number of proposals on the table. Those proposals could have important implications across the spectrum for homebuyers, owners remortgaging, and the wider property market.
The review of mortgage rules stems from changes that were made in the wake of the 2008 financial crisis, which tightened important aspects of the market, such as tighter affordability criteria, tougher financial ‘stress tests’ on prospective mortgage applicants and other efforts to reduce some of the perceived reckless lending that led to the crisis.
So what is the financial regulator considering?
FCA mortgage proposals
This year, several key changes have been suggested, although it is not certain which will take effect yet.
In January, the FCA explained some measures it was looking to introduce to the Government. This included relaxing stress tests and simplifying lending rules. Now, the FCA has launched a consultation to look at more specifics for how the mortgage market can be made easier to navigate for borrowers.
These proposals will make it easier for mortgage borrowers to switch provider when their fixed rate expires. Currently, when a borrower’s deal ends, they can either stay with their lender on a new deal or shop around for a better rate elsewhere.
The issue emerges in that their current lender doesn’t have to go through affordability tests to offer a new deal. But if the borrower wishes to find a better rate, they have to go through all the affordability tests that a new borrower must undergo, even if they have no history of missed payments or changes to their circumstances. This creates an issue whereby lenders tend to offer more expensive deals than the market rate – because they know customers are likely to just accept it if it means no affordability testing is required. The FCA says up to 90% of those looking to remortgage currently just roll over onto new deals.
The regulator has proposed two other changes to the market as well. It has suggested allowing borrowers to reduce their mortgage terms if they can afford it. For instance, a borrower could have 20 years left on their mortgage, but they could have had pay rises that allow them to pay more back. Under new rules they would be able to reduce the length of their mortgage in exchange for higher payments, which is currently not possible.
Further, the FCA says it is looking at whether customers should be given the power to discuss options with providers who aren’t regulated to broker mortgages.
Backlash
This final proposal has prompted a backlash in the mortgage broker sector. Currently nine in 10 mortgages are sold via a broker in the UK. But the FCA’s plans anticipate a 7.5% reduction if they were to implement its proposals.
Brokers have also warned that the rule changes will shift the risks of picking the right product onto consumers. This could ultimately lead to mis-selling scandals – or at least inferior outcomes where people are on unsuitable products.
What should mortgage holders do?
For now, there are no changes to the rules on lending or affordability. But as the Government and regulator look to grease the wheels of the property market, it is likely some, if not all, of these plans will be implemented.
Anyone looking to get a mortgage or in the process of remortgaging should absolutely consult with a professional mortgage adviser to ensure the product they get is suitable. Mortgages are one of the most expensive financial products most people will purchase in their lives. Ultimately, it pays to make sure it is done right and fits the circumstances of the borrower properly.
