On 23 May 2018, the FCA published a speech by Jonathan Davidson (Director of Supervision – Retail and Authorisations, FCA) entitled Building Societies and the future of retail banking.

In his speech Mr Davidson talks about opportunities for the building society sector in light of wider developments in the markets. His main message is that although change brings risk, it also brings opportunity. As a regulator, the FCA wants to work collaboratively in taking advantage of the opportunities for building societies to help finance a well-functioning mortgage market, providing innovative products and helping consumers get good value for money.

Other messages in the speech include:

  • retirement interest-only is not an entirely new form of lending, but nevertheless it presents many challenges. For example, there is a natural caution to lend to older borrowers, not least due to potential challenges of assessing affordability, not to mention the potential challenge down the line by relatives as a person moves into care or passes away. However, there is a real opportunity to devise solutions that will help and provide value to building society members if done right;
  • there are several peaks in the maturity of interest-only mortgages. The next peaks, in 2027/2028 and 2032, include less affluent individuals who had higher income multiples at the point of application, greater rates of mortgages converted from repayment to interest-only and lower forecast equity levels. The FCA is concerned that these customers are more at risk of shortfalls. The FCA’s main objective is to encourage borrowers and lenders to take early action, customers should talk to their lender as early as possible as this will give them more options when it comes to the next steps they can take; and
  • the FCA is monitoring arrears. Although the number of mortgage accounts in arrears is at an all-time low, the level of more serious arrears has remained relatively stable. The FCA is currently looking at this area and will publish its findings later this year.