The issue of mortgage prisoners and lenders not using the affordability freedoms to help these borrowers will be “a priority” for the new head of the Financial Conduct Authority (FCA).
Chief executive designate Nikhil Rathi, who is due to start his role on 1 October, also defended the need for lenders to retain a record of borrowers who had taken a mortgage payment holiday.
Rathi told the Treasury Select Committee of MPs that he was aware of the plight of the mortgage prisoners and this would be a critical starting point for him.
“On the mortgage prisoners, I know there’s been some progress with respect to affordability tests and enabling consumers to understand they can switch,” he said.
“But there remain some issues to resolve, particularly the take up by banks of the new affordability freedoms that the FCA has put in place and I will look to take that as a priority.
“I recognise there are also some Treasury issues to this dimension as well.”
The mortgage prisoner action groups have been urging HM Treasury to grant the FCA a wider remit to bring inactive and closed book lenders under the regulator’s rules.
This was supported by previous FCA chief executive Andrew Bailey.
However, despite this Treasury has failed to bring any legislation to Parliament to enable this and repeatedly rebuffed campaigners calls for other support.
Mortgage payment holidays
The committee also raised the issue of mortgage payment holidays being recorded on borrowers’ credit profiles and preventing them from remortgaging.
Rathi defended the approach of firms, saying it was a “difficult balance to strike” but it was essential to ensure that people were borrowing what they could afford.
“I understand that is an issue and there is considerable discussion about how to make sure that credit impairment doesn’t result from taking holidays for legitimate reason,” he said.
“But also that the integrity of the credit database is maintained so that people do not take on unsustainable debt.
“If they’ve taken holidays, debt will accumulate and they may not be in a position to take on more debt with a new lender and that’s a difficult balance to strike.”
He added that he was not completely on top of all the detail, but he would be giving the issue close attention.
Rathi also confirmed reports he had established a limited liability partnership (LLP) in order to manage buy-to-let properties bought with his wife and mother-in-law.
The incoming CEO said having received tax advice the partnership was established as the best way to manage the arrangement and was not done for tax advantages.
“As this was more than just my wife and I, we felt it was important to put it on a formal footing and established a partnership – that would be a robust way to manage issues now and in the future,” he said.
“The partnership, as compared to other ways of owning, has the benefit of enabling a property to be used for personal reasons should that be needed, and we had some specific family circumstances which might have made that necessary in the near term.”
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.