On 28 October 2019, the FCA published Policy Statement 19/27: Changes to its responsible lending rules and guidance – feedback on CP19/14 and final rules (PS19/27). In PS19/27 the FCA will remove barriers that prevent consumers from switching to a more affordable mortgage despite being up to date with their current mortgage payments.

The proposals were consulted on by the FCA in March with an update provided in August (see our earlier blog here).

The FCA states that respondents largely supported the consultation proposals and therefore it will implement them as consulted. The changes will mean that:

  • mortgage lenders can choose to carry out a modified affordability assessment (modified assessment) where the consumer: (i) has a current mortgage; (ii) is up to date with their mortgage payments; (iii) does not want to borrow more, other than to finance any relevant product, arrangement or intermediary fee for that mortgage; and (iv) is looking to switch to a new mortgage deal on their current property;
  • inactive lenders, and administrators acting for unregulated entities, must review their customer books and develop and implement a communication strategy for relevant consumers (this will include contacting consumers to highlight the rule changes, that they may be able to switch as a result of the rule changes and directing them to relevant information);
  • mortgage lenders that use the modified assessment must tell consumers the basis on which their affordability has been assessed and provide additional disclosures about potential risks; and
  • mortgage lenders are required to report which sales have involved.

In response to the feedback it received on its consultation and its other work in the market, the FCA has changed certain elements of its proposals, including:

  • allowing eligible consumers to be able to borrow more to finance an intermediary fee, as well as a product or arrangement fee;
  • simplifying the definition of a ‘more affordable’ mortgage to a test of whether the new mortgage has a lower total expected cost and lower interest rate, over the deal period or whole term if there is no deal period, than the current mortgage. Also that the typical monthly payment under the new mortgage must be lower than the monthly payment paid in every one of the last 12 months under the current mortgage; and
  • requiring inactive lenders and administrators of unregulated entities to develop and implement a communication strategy for contacting relevant consumers.

The FCA will also not proceed with:

  • allowing the modified assessment to be used where the consumer is looking to switch to a new mortgage deal on a new property; and
  • requiring a more affordable mortgage to have a lower reversion rate than the rate the consumer is currently playing.

The new rules in the Policy Statement came into force immediately.

Lenders can start using the modified assessment as soon as they are ready to do so.

The changes to reporting requirements are effective immediately.

The FCA expects firms to report the use of the modified assessment once they start using it. The FCA will publish the technical documents (Data Reference Guide) in February 2020. The FCA has also included a transitional provision to allow firms to align these reporting requirements with its Product Sales report (PSD001) changes as outlined in Policy Statement 19/23 (our blog on the Policy Statement is here). This allows firms to report any use of the modified assessment as a mortgage where Rule 11.7 of the Mortgages and Home Finance: Conduct of Business sourcebook transitional arrangements have been used.