28 March 2012
The Financial Services Consumer Panel has today called for the FSA to address speedily the detriment and potential harm being faced by 'mortgage prisoners' - those people trapped in an existing mortgage agreement, perhaps because of a high loan-to-value, negative equity, inability to exit a fixed term deal or by the severe contraction in the interest-only market.
The Panel, in its response to the Mortgage Market Review (MMR) consultation2, has called for the FSA to strengthen its transitional arrangements for borrowers whose current mortgages may fall foul of the proposed new rules if they attempt to re-mortgage and to apply these protections immediately. The vulnerability of mortgage prisoners has been highlighted recently following the increase in a number of lenders' standard variable rate (SVR). The Panel believes that the FSA should introduce a new rule specifically to protect these consumers.
Additionally, the Panel has said that unless the FSA is fully confident on the basis of solid empirical evidence that consumers would not be harmed by prompt implementation, the new responsible lending requirements for the whole market should not be brought into effect until the housing market has demonstrably recovered. The potential for the MMR's proposals further to restrain lending at a time when underwriting standards are already tight would be detrimental to consumers.
Adam Phillips Consumer Panel Chair commented:
"The FSA is undoubtedly right to bring forward proposals for stricter regulation of the mortgage market given the chaos which has resulted from weak regulation of our financial system. Although we still have some suggestions for improvements, overall we are very pleased with the FSA's proposals and the progress made from the initial consultation. The FSA must be praised for having listened to both industry and consumer groups.
'However, we remain extremely concerned that many people, in particular those affected by the recent rises in lenders' SVRs, will find the increase in their monthly mortgage repayments financially challenging. These increases are inconsistent with the principle of Treating Customers Fairly and could be addressed if the FSA were to consider introducing a new rule as we suggest. Otherwise significant numbers of consumers stand to suffer detriment.'
Notes to editors
- In its consultation CP11/31 the FSA classified 'mortgage prisoners' as those with a loan to value of more than 85% and with an impaired credit history. The market has moved on significantly since then.
- The Panel's response.
- The Peer Reviews by Europe Economics and Jon Stern .
- The six point plan is available on the Consumer Panel website the key points being:
- effective regulation to help consumers;
- regulatory policy to take account of wider social and economic implications;
- lenders required to judge affordability and suitability for individual consumers;
- transitional arrangements which take account of the implications of the changes for all segments of the market;
- a future regulatory structure responsive to consumers' needs; and,
- balanced debate which overcomes the polarised views on the mortgage market.
- The Consumer Panel is a statutory body under the Financial Services and Markets Act 2000 and was initially established by the Financial Services Authority in December 1998. The Panel advises the FSA on the interests and concerns of consumers and reports on the FSA's performance in meeting its objectives.
- The emphasis of the Panel's work is on activities that are regulated by the FSA, although it may also look at the impact on consumers of activities outside but related to the FSA's remit. More information about the Panel's work is available on our website.
- Panel members are appointed to serve a maximum of two terms of three years. Further information on individual members.