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The UK financial watchdog has announced plans to water down its rules on mortgage lending to make it faster and cheaper for people to get home loans, despite consumer groups warning of increased mis-selling risks.
British lenders will be freed from having to provide formal advice or to carry out full affordability assessments when arranging mortgages for many customers, under plans outlined by the Financial Conduct Authority on Wednesday.
“We want to make it easier, faster and cheaper for borrowers to make changes to their mortgage,” Emad Aladhal, the FCA’s director of retail banking, said in a speech.
The regulator said it would also scrap guidelines for lenders on dealing with interest-only mortgages and on telling customers what support is available when interest rates rise. It said these had achieved their aims and were not providing much benefit.
The plans, which will chip away at rules designed to prevent a future financial crisis, are part of the FCA’s response to prime minister Sir Keir Starmer’s call for regulators to focus on promoting economic growth.
“These proposals can allow lenders greater scope to innovate and develop their own approaches to deliver good outcomes, and in doing so empower borrowers to make the right choices for their mortgage,” said Aladhal.
Banks welcomed the announcement. “The proposals should prove beneficial for those looking to remortgage or reduce their mortgage term,” said Charles Roe, director of mortgages at the UK Finance trade body. “The changes will help drive the government’s growth agenda in a way that benefits our members, and their mortgage customers.”
However, there are fears the regulator is diluting consumer protections. “The FCA will need to watch the market very carefully after these rules come into force to ensure they don’t drive a return to the era of mis-selling or catalyse a new era of mis-buying,” said James Daley, head of consumer group Fairer Finance.
Under the proposals, lenders would be allowed to do a lighter affordability assessment of a customer when offering to remortgage at a cheaper rate than their existing lender.
Last year, 83 per cent of people who remortgaged stayed with their existing lender and the FCA said this reflected “several barriers or transaction costs, both in time and money” when seeking a mortgage from a different provider.
Lenders would be freed from having to conduct a full affordability assessment when customers are reducing the term of their mortgage. The FCA said 41 per cent of new mortgages last year extended beyond the state pension age of 67 and reducing the term would lower the risk of repayment problems “later in life”.
The regulator said it also aimed to make it easier for customers to arrange a mortgage without having to go through the formal process of receiving regulated advice, which includes the lender checking if a home loan is suitable.
In the past two decades, 97 per cent of customers getting a new mortgage have received regulated advice from their lender. That is up from about 70 per cent before the FCA introduced stricter requirements in 2014 in response to the 2008 financial crisis.
The FCA said its 2014 rule had restricted “more than intended” the ability of consumers to opt out of advice when they knew the precise home loan they wanted and were confident of not needing the extra protection of having the suitability assessed.
Its rules would not change for higher risk customers, such as those consolidating debt, exercising a statutory “right to buy” their home, with shared equity arrangements or on lifetime mortgages.
The regulator said it was able to dilute some requirements since introducing consumer duty rules two years ago that require firms to ensure customers get good outcomes. But it said there was a risk its proposals could mean people are “more likely to choose an unsuitable or more expensive product”.
Companies have until June 4 to respond to the consultation.
