Implementation group on proposed changes to responsible lending rules

On 26 March 2019, we published a consultation paper proposing changes to rules to reduce regulatory barriers to consumers who are up-to-date with payments, and not looking to borrow more, switching to a more affordable mortgage. The rule changes, which came in to force on 28 October 2019, aim to reduce the barriers to switching these consumers face now or could face in future.

The new rules allow mortgage lenders to undertake a modified affordability assessment for eligible consumers, and requirie lenders and mortgage administrators to notify certain categories of customers of the possibility that they may be able to switch.

The consultation closed on 26 June 2019, and published a policy statement on 28 October 2019.

In response to consultation feedback we set up an implementation group of trade associations, lenders and third-party administrators. This group will assist the industry’s preparation allowing them to take advantage of the proposed modified assessments sooner we announced earlier this year.

This page will provide summaries of the group’s discussions after each meeting.

Latest meeting: 20 January 2020

The group discussed plans for a model communication to help administrators when making the required contact with consumers who might benefit from a modified affordability assessment. Further drafting changes suggested by the group, and by consumer representatives, had been incorporated so the model communication was close to being finalised. The outstanding action was to confirm how to make the communication available to administrators. Group members identified various ways in which firms might add to or tailor the content, for example if a lender wanted to refer to particular distribution partners. FCA confirmed that the communication requirement allows firms to include additional messages.

The group saw an important role for intermediaries where there are customers who may be able to benefit from the modified affordability assessment. Options to develop the customer journey and help these borrowers find appropriate intermediaries were considered.

The group then considered the newly published FCA data on the mortgage prisoner population. As requested by the group this analysis covered both mortgages owned by an unregulated entity and those mortgages in a closed book held by an active lender. The presentation of the data reflected profiles previously identified by the group. In the discussion that followed there was a view that some additional profiles would be helpful. FCA agreed to consider this.

FCA reiterated its determination to see the rules used to help as many consumers as possible, and for the group to be a means of ongoing support for firms planning to adopt the modified affordability assessments.

FCA asked about any practical implementation challenges and said it was willing to collate and address questions arising from the group.

Supplementary meeting for intermediaries - 28 November 2019

As a number of intermediaries joined the implementation group discussions this meeting recapped on the objectives for the group and the discussions to date. We explored the role intermediaries could play in helping eligible consumers to find a lender likely to make use of the modified affordability assessment.

The group considered a presentation on a possible web-based tool for helping identify if a consumer might be helped. This had the potential to draw knowledge both of underwriting standards in the market and credit file information. It could supplement the proposed question set that any consumer is likely to be directed to in communications from inactive lenders and administrators for unregulated entities.

The group concluded the next logical stage in the consumer journey would be to contact an intermediary. Practical challenges were seen identifying those intermediaries willing and able to take on consumers. This was something the intermediaries involved agree to further consider ahead of the next group meeting.

We gave an update on the data collected regarding customers of unregulated entities, and explained how this was being further analysed.

Third meeting: 25 October 2019

The group discussed issues relating to the upcoming Policy Statement, which would set out the FCA’s response to feedback on its proposed changes to the responsible lending rules. The Policy Statement has since been published and can be found here.

FCA gave an update on the data collected regarding customers of unregulated entities. The initial findings were discussed, recognising that more work was needed to ensure data quality.

The group again discussed the form of consumer communications to be made by inactive lenders and administrators of unregulated entities. The group agreed that the input from consumer groups would improve the model communication that had been developed. There was also a concern that the communication should not over-promise or raise expectations amongst those consumers who are not likely to find a remortgage option.

The group also considered a draft webpage with suggested filtering questions for potentially eligible consumers. The questions were intended to enable consumers to understand whether they may be able to get a new mortgage deal and provide them with information about their options if not. The discussion covered the importance of keeping the questions short and straightforward to complete.

The group discussed the potential for a web-based solution that would give borrowers an early indication of whether they would be able to switch to a new lender. The group was positive about the use of such a tool; group members agreed to seek views and determine the interest from industry to support such a service.

Finally, it was agreed that there should be a separate meeting to explore the role that intermediaries may play in helping eligible consumers find remortgage options.

Objective and aims

The implementation group has been established to:

  • enable market-readiness for using proposed responsible lending changes
  • promote the availability of switching options for certain consumers 

To achieve the above objective the implementation group wants to:

  • Resolve any misunderstandings about the intention of the policy. Understand any further policy development from the FCA following consultation responses. This is on the basis that all decisions regarding the final form of any rules are a matter for the FCA Board.
  • Address how the possible availability of switching options is explained to consumers.
  • How a consumer can be quickly helped to discover, or be enabled to self-identify, if switching options are available, eg is there a need for a common way of explaining the customer types and characteristics that individual lenders will use to determine eligibility.
  • Address when lenders may be ready to make use of the modified rules, and the merits and timing of any common launch.
  • Develop a cross-industry approach to ensuring successful consumer engagement on the availability of switching options.

Second meeting: 29 August 2019

We spoke about consultation feedback on how a new mortgage might be identified as ‘more affordable’ under the proposed rules. A simplified approach to this was discussed.

The group discussed in detail the information that would need to be available to consumers to raise awareness of the modified rules if made by the FCA Board and the possibility that consumers may have new remortgaging opportunities. This covered:

  • Which consumers should be contacted about possibilities presented by the new way of assessing affordability.
  • How to explain the changes.
  • Questions for consumers to assess if they may have new remortgaging opportunities.
  • Information or guidance needed to support these questions.

Benefit was seen in getting a wider set of views on the messages for consumers. A further sub-group meeting was agreed to develop a potential approach with the intention to get input from other key stakeholders on these messages.

The meeting also considered how lenders will communicate their use of any modified rules, and the support available to intermediaries. The group’s view was that existing means of explaining product availability and eligibility should be used rather than creating an additional standalone tool for intermediaries. It was proposed that distribution issues be considered at the next group meeting, with intermediary involvement in the discussion.

First meeting: 2 August 2019

Members agreed the aims and objectives of the group, as follows;

We gave a summary of responses to CP19/14 and the proposed rule changes confirming the outlined modified affordability assessment would be available if consolidating first and second charge mortgages. Also discussed was whether it was clear how ‘more affordable’ would be assessed for new mortgage products with a discount variable rate. 

We invited views on where clarity on current thinking would be most helpful to lenders in preparing to make use of the proposed new rules. The topics identified could then be considered at future meetings.

The meeting talked through necessary actions for all parties to prepare for, and act on, changes, including:

  • FCA confirming its policy position, along with any rule changes
  • lenders deciding on their individual approaches to making use of any modified rules
  • lenders providing transparency on their approaches to other stakeholders eg intermediaries
  • simple and engaging communications direct to consumers
  • any necessary consumer resources to inform subsequent decision-making eg webpages and tools
  • support available from intermediaries

A sub-group was proposed for lender representatives to explore how individual approaches to the modified rules can be clearly communicated.

A further sub-group was proposed to identify and begin working up the key messages to be conveyed throughout the customer journey.

Membership

At the first meeting (2 August 2019) we explained that whilst initial membership was drawn from lenders and administrators there was a willingness for this to expand over time to other interested parties such as intermediaries. 

The group members are:

  • Building Societies Association 
  • UK Finance
  • Ipswich Building Society
  • Buckinghamshire Building Society
  • Furness Building Society
  • Tipton and Coseley Building Society
  • West Bromwich Building Society
  • OneSavings Bank
  • UK Asset Resolution Ltd.
  • Leeds Building Society
  • Kensington Mortgages
  • Yorkshire Building Society
  • Link Asset Services
  • Mortgages Plc

Email [email protected] if you would like to join the group.

Upcoming meetings:

  • 13 December 2019

Page updates

19/09/2019: Information added 29 August 2019 meeting notes