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UK Financial Watchdog has announced plans to cut mortgage lending rules despite consumer groups warnings of an increased risk of false sales.
UK lenders will be relieved of providing formal advice or performing a fully affordable valuation when arranging mortgages for many clients under plans outlined by the Financial Conduct on Wednesday.
“We want borrowers to make it easier, faster and cheaper to change their mortgage,” said Emad Aladhal, director of FCA’s retail banks in a speech.
Regulators said they would scrap lenders’ guidelines on dealing with interest-only mortgages and telling customers what support is available when interest rates rise. They said they achieved their goals and were not very profitable.
The plan cuts down rules designed to prevent future financial crisis and is part of the FCA’s response to Prime Minister Kiel or Prime Minister’s call to regulators to focus on promoting economic growth.
“These proposals allow lenders to innovate a greater range and develop approaches that will provide better results, and by doing so, borrowers can make the right mortgage choice,” Aradal said.
The bank welcomed the announcement. “The proposal should be beneficial to anyone considering reducing mortgage terms or reducing mortgage terms,” said Charles Law, director of the UK Financial and Trade Organization. “This change will help drive the government’s growth agenda in ways that benefit members and mortgage clients.”
However, they fear that regulators are diluting consumer protections. “The FCA needs to watch the market very carefully once these rules come into effect, ensuring that they don’t return to an era of false sales or catalyze a new era of false sales,” said James Daly, head of consumer groups.
Under the proposal, lenders will be allowed to perform a lighter, affordable valuation of their customers when offering rimmut at a lower rate than existing lenders.
Last year, 83% of Remortgaged remained with existing lenders, and the FCA said this reflects “some barriers or transaction costs, both in time and money,” when seeking a mortgage from another provider.
Lenders are relieved of the need to perform a full affordable valuation when clients are reducing the term of their mortgage. The FCA said 41% of new mortgages last year will be extended beyond the 67-year-old state pension age, and reducing that period will reduce the risk of “late” repayment issues.
The regulator said the aim is to make it easier for clients to arrange mortgages without going through the formal process of receiving regulated advice, or through the formal mortgage process.
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Over the past 20 years, 97% of customers who have acquired new mortgages have received regulated advice from lenders. This is up from about 70% before FCA introduced more stringent requirements in 2014 in response to the 2008 financial crisis.
The FCA said the 2014 regulations limited the ability of consumers to “intended” their ability to opt out of advice when they were convinced that they knew the exact mortgage they wanted and that the extra protection of assessing suitability was not needed.
The rules remain the same for higher risk customers, such as integrating debts and exercising the statutory “right to buy a home.”
Regulators said several requirements could be diluted since the introduction of consumer obligation rules two years ago, which requires businesses to ensure good results for their customers. However, the proposal said there is a risk that it could mean that people are “more likely to choose an inappropriate or more expensive product.”
Companies will need to respond to consultations until June 4th.
