Lenders working closely with the Financial Conduct Authority (FCA), have agreed on common standards to help existing borrowers on reversion rates who are up-to-date with repayments but, because of stricter affordability criteria, are currently ineligible to move to an alternative product provided by their lender.
The cross-industry voluntary commitment has been announced by UK Finance, the Building Societies Association (BSA) and the Intermediary Mortgage Lenders Association (IMLA). In its Mortgages Market Study interim report, the FCA identified a relatively small proportion of borrowers who are on a reversion rate, are up-to-date with repayments and would benefit from switching to a new deal but cannot do so. Fifty-nine authorised lenders representing 93 per cent of the UK’s residential mortgage market have joined the initiative.
This cross-industry commitment applies only to customers of those lenders that are able to offer alternative products to their existing borrowers. A number of authorised lenders already offer their existing customers the opportunity to switch. However, as required, lenders have undertaken to write to any qualifying borrowers by the end of 2018 if they haven’t already done so. Customers do not need to take any action and will not be obliged to switch if they do not wish to.
To qualify, the following standard principle-based criteria* will apply:
Customers will need to –
- be first charge owner-occupiers
- be existing borrowers of an active lender
- be on a reversion rate
- be looking for a like-for-like mortgage
- be up to date with payments
- have a minimum remaining term of 2 years
- have a minimum outstanding loan amount of £10,000
And be able to benefit from switching (where it is legally possible under current regulations and law. There may be other exclusions that apply).
Jackie Bennett, Director of Mortgages, UK Finance said: “Lenders have responded to the FCA’s challenge and made a voluntary commitment to help these longstanding borrowers, offering them the ability to switch to an alternative product if they meet the agreed standard criteria – a potential solution that covers 93 per cent of the residential mortgage market. We expect more lenders to participate in the coming months. Furthermore, we will be working closely with the FCA and active lenders to see what might be possible for customers of inactive and unregulated lenders. Participating lenders will be contacting qualifying homeowners so for now, customers don’t need to do anything but wait to hear from their mortgage provider.”
Paul Broadhead, Head of Mortgage and Housing Policy at the Building Societies Association (BSA) said:“It is pleasing that the FCA recognises that the mortgage market works well for the vast majority of borrowers. By signing up to this voluntary agreement lenders will ensure that existing borrowers are not disadvantaged by the changes to mortgage regulation since the financial crisis. The agreement formalises the actions that many societies have been taking and provides clarity and confidence for all affected borrowers.”
Kate Davies, Executive Director of the Intermediary Mortgage Lenders Association (IMLA) said: “The FCA’s Interim Report on its Mortgage Market Study acknowledged that the mortgage market is generally working well for the majority of borrowers. It noted that some improvements could be made for the minority groups who find themselves unable to switch products, as a result of regulatory changes brought into effect since they took out their loans. This initiative will help a number of those borrowers, and further work is planned to address the needs of others.”
The announcement coincides with the deadline for responses to the FCA’s interim Mortgages Market Study. In the study the regulator found that competition in the mortgage market is working well for the vast majority of people but identified several ways in which the market could work better for others. It also highlighted that there are some borrowers who may benefit from switching yet are unable to move on to a new product, a small proportion of whom are with authorised lenders.
This commitment is focused on customers with active lenders initially, with a view to further consideration of what might be possible for the 20,000 customers with inactive lenders and the 120,000 customers with unregulated mortgage owners, as identified by the FCA – who are not UK Finance, BSA or IMLA members. Lenders may be able to offer alternative options to some customers. As the FCA recognises, this is not a contractual right, so the circumstances of the case and the lender’s policy will determine what options may be available.