On 26 March 2019, the FCA published Consultation Paper 19/14: Mortgage customers: proposed changes to responsible lending rules and guidance (CP19/14).

By way of background, the FCA is concerned that some consumers cannot switch to a more affordable mortgage despite being up-to-date with their mortgage payments. This includes those who cannot switch because of changes to lending practices during and after the 2008 financial crisis and the subsequent regulation that tightened lending standards – ‘mortgage prisoners’.

The FCA has estimated that around 30,000 consumers would benefit from switching, but were unable to do so, despite being up-to-date with payments. The FCA has previously committed to removing potential barriers within its rules that stop consumers switching to a more affordable mortgage. To do this, the FCA is consulting on changes to its responsible lending rules which will enable mortgage lenders to make more proportionate affordability assessments.

The FCA is proposing to amend its responsible lending rules and guidance so that:

  • mortgage lenders can choose to carry out a modified affordability assessment where the consumer:
    • has a current mortgage;
    • is up-to-date with their mortgage payments;
    • does not want to borrow more, other than to finance any relevant product fee or arrangement fee for that mortgage; and
    • is looking to switch to a new mortgage deal on their current property.
  • inactive lenders, and administrators acting for unregulated entities, are required to review their customer books and contact relevant consumers. They must then write to them highlighting this rule change and directing them to relevant sources of information;
  • mortgage lenders that use the modified assessment are required to tell consumers the basis on which their affordability has been assessed and provide some additional disclosures about potential risks; and
  • mortgage lenders are required to flag which sales have involved the modified assessment when they submit product sales data reports to the FCA.

Annex 1 of CP19/14 provides worked examples of the modified affordability assessment.

Appendix 1 of CP19/14 contains draft Handbook text.

The deadline for responses to CP19/14 is 26 June 2019. The FCA expects to publish its rules on the topic in a Policy Statement in Q4 2019.