United Kingdom (and EU regulation)

FCA Consultation Paper: Removing barriers to intra-group switching and helping borrowers with maturing interest-only and part-and-part mortgages

By Matthew Gregory (UK) and Simon Lovegrove (UK) on July 29, 2020 Posted in Mortgages, United Kingdom

On 28 July 2020, the FCA issued a statement on mortgage prisoners, and a Consultation Paper setting out proposals intended to support some consumers in the mortgage market.

The statement presents the further analysis the FCA has done on borrowers with inactive firms, including mortgage prisoners. It sets out the actions the FCA has already taken to help mortgage prisoners. The FCA has also outlined further support for consumers who are struggling, including a new dedicated helpline created with the Money and Pensions Service.

In the Consultation Paper the FCA is consulting on two proposed interventions to help two different groups of mortgage borrowers affected by the current market conditions:

The FCA wants to remove a potential barrier in its rules to borrowers in a closed book switching to a potentially cheaper mortgage deal with a firm that sits within the same group as their current lender. The FCA refers to this as ‘intra-group switching’. The FCA proposes to amend its responsible lending rules so that lenders can choose to not undertake a standard affordability assessment if the borrower seeking to switch to a new deal without borrowing more is currently in a closed book within the same group as the lender. The FCA feels that this should help make it easier for these borrowers to take out a new mortgage contract. The detail of this proposed change is set out in Chapter 3 of the Consultation Paper.
The FCA proposes to issue temporary guidance relating to borrowers with a maturing or recently matured interest-only or part-and-part mortgages who are up-to-date with payments. The FCA states that these borrowers could be facing challenges in repaying the capital on their mortgage as a result of market disruption caused by the Covid-19 crisis. The proposed guidance makes clear that firms should enable these borrowers to continue making interest payments and delay repayment of the capital on their mortgage up to 31 October 2021, if they need to. The details of this proposal, including which borrowers will be eligible, can be found in Chapter 4 of the Consultation Paper.

The deadline for comments on the Consultation Paper is 8 September 2020.