Updated 21.10.2020
We were right…
FCA rules around affordability will relax in the Spring with relative stress tests, to ensure eligible consumers ( people who aren’t borrowing more) can switch to a more affordable mortgage.
The FCA are offering up a get out of jail free card to borrowers stuck on higher mortgage repayment rates. Relaxing affordability criteria means that thousands of mortgage prisoners are set to be freed!
Lenders can carry out modified affordability assessments for borrowers looking to remortgage so that they able to switch for cheaper deals. Modifying FCA responsible lending rules and guidance removes potential barriers helping borrowers switch to a more affordable product.
This rule review will help make it easier for homeowners to choose the right mortgage- with the valuable advice from their broker of course! The emergence of modified affordability sets a precedent that the affordability rules from MMR are not set in stone forever.
They are always evolving – so there will be more affordability changes to come.
What did we say in 2019?
The FCA’s new consultation paper suggested major changes to their current lending rules and guidance. The FCA didn’t think it was quite right that consumers who had clearly shown that they could make a higher payment, should be prevented from making a lower payment. Not a great way to show good customer value. We agree.
If you can dodge a wrench, you can dodge a ball
Patches O’Houlihan, Dodgeball
What did this mean?
The FCA has suggested that a new lender be allowed to carry out a modified affordability assessment if the consumer is eligible. As mentioned in our update above. To be eligible, the consumer must have a mortgage, made all their payments and not want to borrow more.
Why should I still care?
The proposed changes help consumers pay lower prices for their mortgage. They also help consumers remortgage. Causal Chain.
The changes will unlock consumers with inactive lenders and unregulated entities. The FCA estimates that there are 500,000 eligible consumers, who will be notified about being able to move products in-line with the proposed rules.
A better switching process means another 150,000 – 200,000 consumers per year will benefit. An easier remortgage process will help consumer apathy. We know from talking to hundreds of consumers that when it comes to mortgages, even a little easier helps a lot.
We believed that the proposed changes could have a big impact on remortgages. Also, they’re an excellent opportunity for advisers to revisit customers who could gain from product mobility.
Watch this space… ✅
- Definition of more affordable could extend to the reversion rate
- Home movers could benefit from modified affordability
- Expect a new wave of products with discounted or no arrangement fees
- Expect longer date fixed rate products (more lenders to introduce 5+ year products)
Remind me how this all came about?
After the Financial Crisis, the FCA said “no-more” to poor lending practices. Between 2014 and 2016, the FCA took a long look at what went wrong – releasing tough affordability criteria as part of the Mortgage Market Review (MMR). The new rules were to make sure a consumer didn’t end up getting a product that he (or she!) couldn’t make the payments on.
Seems reasonable…
So, what happened? The FCA’s 2016 Mortgages Market Study discovered a whole load of consumers who couldn’t move to a new product even though they were up-to-date with their payments.
To help these folks out, the FCA said the affordability rules did not apply if a consumer was moving to a new product with their current lender and did not want to borrow more. The FCA also asked Lenders to help these clients move. A voluntary agreement with active Lenders, applying to all consumers, led to a jump in product transfers.
The FCA isn’t sure that this goes far enough. For one, it leaves the problem of consumers with inactive lenders and unregulated entities. But also, the FCA gets that if a consumer is eligible, then there’s no reason why they shouldn’t be able to make a switch.
Post updated with new insight 21.01.2020 ✅
