The Financial Conduct Authority (FCA) is proposing to ease the rules for borrowers switching lenders within the same group and to postpone the burden of maturing interest-only and part-and-part capital repayments.
The regulator has published a consultation paper which would apply to the whole industry but could prove particularly helpful for mortgage prisoners if the options are taken up.
Its first proposal would make it easier for lenders to offer switching options to consumers who are in a closed book within the same financial group as the lender, by allowing them not to undertake a standard affordability assessment when doing so.
The FCA said this would mirror the flexibility that active lenders have under existing rules when their existing customers wish to switch.
However, the regulator confirmed that this would not be a compulsory option for lenders – as a result, mortgage prisoners may be no better off if their inactive lender chooses not to adopt the rule change.
“Firms will be able to choose whether to make use of this enabling rule change. They will not be required to do so, as lending is always a commercial decision,” the FCA said.
“We accept that use of this rule change will be limited by a number of factors, including eligible borrowers’ risk profiles, lenders’ risk appetites and wider market conditions.
“We recognise some borrowers will have circumstances that are outside the risk appetite of the relevant lender.”
Delay capital repayment
The FCA is also proposing to temporarily allow borrowers with a maturing or recently matured interest-only or part-and-part mortgage, who are up-to-date with payments, to delay the capital repayment.
It wants to allow borrowers to continue to make interest payments and delay repayment of the capital on their mortgage up to 31 October 2021 if they need to.
Borrowers must be up-to-date with payments and have an interest-only or part-and-part mortgage maturing between 20 March 2020 and 31 October 2021 to be eligible
Those borrowers who have taken a mortgage payment holiday during the crisis will still be considered eligible, as will those who have a mortgage which matured after 20 March but have continued to make interest payments.
This will apply to all interest-only and part-and-part mortgage, but will be optional for borrowers to implement.
Affordability changes disrupted
Last year the FCA amended its affordability rules to allow lenders to take different measures of affordability where they for remortgaging or switching customers who are up to date with their mortgage payments, do not want to borrow more, and want to remain at their current property.
However, as part of the CP20/13 consultation paper the regulator acknowledged that disruption caused by the coronavirus has meant that lenders’ plans to offer new switching options to mortgage prisoners have been delayed.
“We are committed to working with industry through our implementation group to see these switching options being offered in the coming months,” it said.
“Worsening market conditions are likely to impact on firms’ risk appetites and the availability of switching options but we still expect our modified affordability assessment to help some mortgage prisoners.
“In addition to our modified affordability assessment, we have also explored what else we can do to help borrowers who are unable to switch.
“We are consulting on new rules that will make it easier for closed book borrowers to switch to a mortgage with a new active lender within the same financial group,” it added.
The consultation paper is open until 8 September.
Owain Thomas is features and contributing editor of Mortgage Solutions and editor of Specialist Lending Solutions.
He also has experience in the protection, pensions, workplace benefits and HR areas.
Owain has won two Headline Money Awards and the Protection Review’s Journalist of the Year award.