It’s been over two years since the Mortgage Market Review was implemented and there is still an issue with borrowers being unfairly trapped in their existing mortgage. Throughout 2014 lenders were criticised for failing to implement the FCA’s transitional arrangements, which allowed them to waive the affordability checks for their own, and other lenders’, customers as long as they do not borrow more money. The rules even specified that lenders shouldn’t treat such customers less favourably than others, such as offering them higher interest rates. During this time, we saw a passive regulator stopping short of enforcing its own rules, despite pressure from politicians, intermediaries and consumer groups.
The next year brought an initial glimmer of hope. Sensible building societies led the way in using transitional for borrowers from other lenders. However, no one followed. Lenders started hiding behind the changes being brought in by the Mortgage Credit Directive and the regulator emerged by their side announcing an “improvement” in lenders’ approaches, much to our bemusement.
Whilst MCD removed the original transitional rule applying to other lenders’ customers, it doesn’t specify the affordability assessment that lenders must carry out, nor does this have to be consistent across all customers. Therefore, lenders could adopt a common sense approach. They could continue to conduct their ‘full’ assessments for new borrowers but for those coming from other lenders, they could carry out a credit check, ensure existing mortgage payments have been maintained and income evidenced, on the basis that the level of borrowing doesn’t increase.
So we seem to be back where we started, except there is no reason to be. With the regulator washing their hands of this issue, is it time for sensible building societies to start to lead the way again?
AMI Senior Policy Adviser