Mortgage Charter New FCA Rules
Written on 4 July 2023 by
In his statement announcing the Mortgage Charter The Chancellor said the changes he announced would be available to borrowers with “no questions asked”. The Bank of England and Financial Services Act 2016 states that The Treasury may at any time make recommendations to the FCA on economic policy, but by announcing a new policy without consultation The Chancellor has gone beyond recommending! Nevertheless, the FCA must reflect The Chancellor ‘s policy in its rules.
It has now published a Policy Statement (PS23/8) confirming its enabling provisions. Although being able to self select a forbearance option will be convenient and welcomed by some borrowers, many of whom will be responsible and only use the options available when they really need to, as I said in my previous blog I think it is dangerous because however much information is put in front of borrowers a significant proportion will either not fully understand the implications or will ignore them.
In practice I suspect most borrowers who need to reduce their payments will need to do so for more than 6 months and so prior to the end of 6 months will need to discuss with their lender extending forbearance, as the FCA recognises at point 2.28. Nevertheless, however clear it is made that this forbearance only lasts for 6 months I suspect many borrowers will be lulled into a false sense of security, until contacted by their lender, that they can continue to make lower payments without having a conversation with their lender.
For the same reason I expect very few borrowers will revert back to their original mortgage terms within 6 months. However, I am very pleased that the FCA highlights at 2.10 the ERC free overpayment option which can achieve the same effect as reverting to the original terms but with the benefit of more flexibility and the ability to revert gradually if more appropriate. It also avoids incurring the modest admin fee which many lenders normally charge for a contract variation.
The COVID situation was very different because there was a sudden fear that many people would lose their jobs, but with hindsight we know that many people took the 3 months “no questions asked” holiday as a safety net rather than because they actually needed it.
In the current situation the problem is more about education and lack of adequate forward planning. Borrowers should know when their fixed rate ends and plan well in advance what they will do if new higher payments are going to be challenging or unaffordable; many do but some don’t, although obviously the speed of recent rate increases will have understandably caught some out.
Another crucial point which must be made very clear to borrowers is that there is no confirmation in the FCA Policy Statement that, unlike with the COVID 3 month mortgage holiday, anyone choosing to exercise any of these forbearance options will not have their credit rating adversely affected.
In the absence of such confirmation borrowers should assume that exercising any of these forbearance options will have a negative impact on future mortgage or other credit applications. Therefore the FCA should mandate that the information provided by lenders must include a warning of possible negative effects on borrowers' credit rating.
Finally, Section 2.5 in the Policy Statement is interesting. It says: "These rules are exemptions from responsible lending requirements.” The only conclusion I can draw from this statement is that the FCA thinks its current responsible lending requirements are unduly onerous, as the only logical alternative interpretation is that these new exemptions are irresponsible!
Category: Ray Boulger
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