After a process as long as Brexit, the FCA has finally coughed up its new affordability rules to deal with the trapped borrower issue. The call for inputs on its Mortgages Market Study was in October 2015, followed by the Feedback Statement in May 2016 resulted in the publication of the Terms of Reference in December 2016.
After much analysis of 2015 and 2016 sales data, a range of concerns were identified. Remedies are now germinating. Apart from the voluntary industry agreement on active lender borrowers trapped on SVR, this is the first tangible to be delivered. The lack of haste should make these plans perfect.
My frustration in this is that the new solution will help many more consumers who want a simple remortgage or product transfer than any of the trapped borrowers. The ability for lenders to disapply affordability and stress rules provides opportunity for those who can build flexibility into their procedures, which will simplify processes significantly to allow direct deals without advice.
However there are some pitfalls. The capacity for a borrower to extend the term of their loan to achieve the reduced monthly payments over any initial offer period is an accident waiting to happen. The restrictions on those suffering payment difficulty and those on interest only has displayed a rule maker who lacks the powers to cut through the traditional view and address the tangible consumer issues.
There are also rafts of mortgage holders who have high loan to value ratios, impaired credit histories and incomes that apparently cannot support the loans they are servicing. This is our modern society, with broadly payments being met but our rules built on single employer, P45 foundations.
So it feels like a Goldilocks fright night. Rushed out before Halloween, with the porridge neither lumpy, nor thin, just not there.
Robert Sinclair
November 2019