Second charge mortgage firms told to raise standards for consumers

An FCA review has found that weaknesses in some firms’ practices could put borrowers, particularly those consolidating debt, at increased risk of financial harm.

Second charge mortgages are often used by customers with high existing levels of debt and low financial resilience. The FCA’s review found examples of good practice across the sector but also issues that raise concerns about whether firms are meeting expectations, including under the Consumer Duty[1]. The issues identified in the review include: 

• Affordability assessments that appeared to overlook key living expenses. 
• Advice that steered customers towards debt consolidation when it was not clear if it was appropriate. 
• Inadequate record keeping.  
• Unclear fees, often added to loans, making comparisons difficult.

David Geale, executive director of payments and digital finance at the FCA, said:

'The second charge market is relied on by people often already heavily in debt. It’s vital it works well, but we’ve found that standards are not always where they need to be. This needs to change.'  

The FCA is calling on all second charge firms to consider the findings carefully and take appropriate action. Brokers for the wider mortgage market should consider the findings, especially on record keeping and quality assurance, and whether they can make improvements.

The regulator has continued its engagement with the firms included in the review to ensure shortcomings are addressed. While the regulator has already seen some of the market act on its calls to improve customer understanding, over the next year it will:   

• Continue to work with firms to drive improvements across the second charge market 
• Keep monitoring second charge firms and take action where it has concerns – using the full range of regulatory powers where needed 
• Begin to consider any mortgage policy changes needed to support good outcomes for consumers consolidating debt. 

Notes to editors

1. Read Second charge mortgages – improving outcomes for consumers[2].
2. Second charge mortgages let homeowners borrow extra money using the equity in their home, without having to change their existing mortgage. 
3. Second charge mortgages make up a small proportion of the total mortgage market - typically less than 4% of regulated mortgage sales. 
4. We have published our new Regulatory Priorities Retail Mortgages report[3], which sets out key actions firms should take over the next year, plus the areas we’ll be focusing on.   
5. The FCA enables a fair and thriving financial services market for the good of consumers and the economy. Find out more about the FCA[4].