Month: July 2025

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FCA publishes policy statement setting out changes making it easier for borrowers to re-mortgage

Earlier today, on 22 July 2025, the UK Financial Conduct Authority published a news article, a press release and a policy statement setting out its changes to the the FCA Handbook, including to the Mortgages and Home Finance: Conduct of Business Sourcebook (or MCOB), aiming to make it easier for borrowers to re-mortgage.

What’s changed?

The FCA has made the following changes:

– mortgage advice and interactive dialogue: the FCA has removed the interaction trigger at MCOB 4.8A.7R(3) and associated rules and guidance in MCOB 4 and MCOB 8. This means interactions between firms and their customers should not automatically trigger advice.

– affordability assessments when reducing the mortgage term: the FCA has removed the requirement for a full affordability assessment when reducing a mortgage term by introducing MCOB 11.6.3R(6). But firms must still consider affordability under their responsible lending policy and the consumer duty and PRIN 2A.

– amending affordability assessments when re-mortgaging: the FCA has amended the modified affordability assessment in MCOB 11.9 to include new mortgage contracts with new lenders where it is more affordable than either (a) the borrower’s current mortgage or (b) a new mortgage product that is available to that customer from their current lender.

– retiring guidance: the FCA has retired guidance in FG13/7 (dealing fairly with interest-only mortgage customers who risk being unable to repay their loan) FG24/2 (guidance for firms supporting their existing mortgage borrowers impacted by the rising cost of living) (and there are some new provisions in MCOB 13.2.1AG, MCOB 13.3.8AR and MCOB 13.3.8BG).

– Gibraltar: the FCA has added MCOB 4.1.2ER to make it clear that these changes apply to any Gibraltar-based mortgage lenders who may want to lend within the UK in the future.

When do these changes come into force?

These changes come into effect straight-away.

Why has the FCA made these changes?

The changes made by the FCA aim to allow borrowers to:

– find it easier to reduce their mortgage term, helping to lower the total cost of borrowing and reduce the risk of their repayments extending into retirement;

– more easily re-mortgage with a new lender (which should help them access cheaper products); and

– be able to discuss options with their mortgage provider and get advice when they need it.

The FCA has removed guidance which has “served its purpose” to reduce the regulatory burden.

These changes are part of the FCA’s first steps to simplify its rules and increase flexibility. The FCA says the “Consumer Duty sets clearer, up-to-date standards in financial services“. The changes to the FCA’s rules, including MCOB, aim to provide “greater opportunity for innovation“.

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Financial Conduct Authority publishes consultation paper on its proposed rules and guidance for regulation of unregulated Buy Now Pay Later (now called ‘deferred payment credit’)

Earlier today, on 18 July 2025, the UK Financial Conduct Authority (the FCA) published a press release and a consultation paper, ‘Deferred Payment Credit (unregulated Buy Now Pay Later): Proposed approach to regulation’ (CP25/23), setting out its proposed rules and guidance for regulation of unregulated Buy Now Pay Later (which will now be called ‘Deferred Payment Credit’ or DPC).

The FCA is inviting responses by 26 September 2025.

The key proposals are:

– information requirements: the FCA proposes to introduce new rules requiring customers to be given information to help them make “effective, timely and informed decisions about DPC borrowing before they enter into an agreement, and throughout the lifetime of the agreement” (including if they miss payments) (see paragraphs 3.9 to 3.75 of CP25/23).

– creditworthiness assessments: the FCA wants DPC lending to be affordable. The FCA will expect firms to “do proportionate creditworthiness assessments, so that borrowers can keep up repayments without harming their financial wellbeing“. The FCA proposes to “apply our existing principles-based rules and guidance at CONC 5.2A” (see paragraphs 3.76 to 3.102 of CP25/23).

– high-level standards and existing consumer credit rules: the FCA wants the consumer duty to apply (requiring firms to act to deliver good outcomes to retail customers) and it will also apply some existing consumer credit rules to DPC (see, for example, paragraphs 2.35 to 2.42, and chapter 4, of CP25/23).

– dispute resolution: customers under a DPC agreement will be able to complain and refer their complaints to the Financial Ombudsman Service (see chapter 5 of CP25/23).

– data reporting: the FCA will expect “better and more up-to-date information about the DPC sector and customer outcomes” (see paragraphs 4.18 to 4.40 of CP25/23).

– authorisation: the FCA proposes to introduce a temporary permissions regime while firms apply for a relevant authorisation from the FCA (see chapter 6 of CP25/23).

Like anything with consumer credit, the devil is always in the detail. For example, the FCA proposes that the key provisions on pre-contractual information will be set out in CONC 4.2A. There are proposed new rules on continuous payment authorities in CONC 4.6.2AR. There are also proposed new rules in CONC 7.20 dealing with information to customers about missed payments and giving notice before taking certain steps. The aim of these proposed rules is to make disclosures and documentation more meaningful and accessible to customers, whilst reducing unnecessary burdens on firms.

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Financial Ombudsman Service announces change to compensatory interest levels

Earlier this week, on 15 July 2025, the Financial Ombudsman Service (the Ombudsman Service) published a press release and a policy statement, following a consultation, setting out its decision to change the level of compensatory interest it awards where it upholds a complaint.

The key changes will be:

– If a complainant can show actual loss, their actual loss will be considered when making the money award so that the complainant “is restored to their original financial position”;

– To compensate a complainant from being kept out of their money, the Ombudsman Service will continue to award compensatory interest. But instead of awarding 8% a year, it will award “a time-weighted average of the Bank of England base rate plus one percentage point” and this rate “will generally apply to the period from when the complainant was unreasonably deprived of the money, to the payment deadline” set by the Ombudsman Service; and

– If a firm fails to pay any award by the date set out in the award, a rate of 8% will be used after the deadline date for payment until it is actually paid.

The Ombudsman Service proposes to implement these changes from 1 January 2026 (but the implementation date will be confirmed “in due course”).

This is a significant step forward and re-balances what has always been a penal rate awarded by the Ombudsman Service. In 2018, I wrote a case report in Goode: Consumer Credit Reports on Carrasco v Johnson [2018] GCCR 16001 saying that the Ombudsman Service had “developed a practice of awarding interest at 8% a year” and submitted that practice was flawed because there was “no clear legal basis for the FOS to award interest at 8% a year which, given the base rates, is likely to punish firms who are required to provide redress”. I said that decision should force “a re-think of the FOS’s current policy of awarding interest at 8% a year”. Seven years on, such a re-think has finally happened and cannot be implemented a moment too soon.