Category: Mortgages

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Financial Conduct Authority publishes terms of reference for mortgage prisoner review

Earlier today, on 20 July 2021, the UK Financial Conduct Authority published its terms of reference setting out the steps it proposes to take in its mortgage prisoner review.

The FCA estimates there are around 250,000 borrowers who have mortgages with ‘inactive firms’ (ie firms which are either not lending to new customers, or are not lenders). The FCA accepts that “[n]ot all of these borrowers are mortgage prisoners”. The FCA says mortgage prisoners are “borrowers who are unable to switch to a new mortgage deal despite being up to date with their mortgage payments and, depending on their loan and borrower risk characteristics, could potentially benefit from switching”.

The FCA intends to review two areas:

– a data review: this will review and update the FCA’s data to consider the demographic and loan characteristics of mortgage prisoners; and

– an interventions review: this will review the effectiveness of the FCA’s recent interventions to remove regulatory barriers to switching (focussing on the modified affordability assessments and the intra-group switching rule change).

The FCA expects to undertake its data review and analysis between July and October 2021. It also expects to engage with interested stakeholders between July and August 2021. The FCA expects to report to HM Treasury by the end of November 2021.

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FCA publishes latest mortgage lending statistics

On 8 June 2021, the UK Financial Conduct Authority published its mortgage lending statistics for Q1 2021.

The FCA notes:

– the outstanding value of all residential mortgage loans was £1,561.8 billion at the end of Q1 2021 (3.6% higher than a year earlier);

– the value of gross mortgage advances in Q1 2021 was £83.3 billion (26.5% higher than in Q1 2020, and the highest level since Q4 2007); and

– the value of new mortgage commitments (lending agreed to be advanced in the coming months) was 15% higher than a year earlier at £77.5 billion.

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FCA publishes information for borrowers who have LIBOR linked mortgages

On 11 June 2021, the UK Financial Conduct Authority published a new webpage giving information to borrowers who have LIBOR linked mortgages.

The webpage says:

– LIBOR is used to calculate “some interest rates” for mortgages and is coming to an end in 2021;

– if the mortgage is LIBOR linked, the lender “may need to amend its terms and conditions to change the way the interest rate is calculated”. If it does so, the lender will tell the customer (and may ask for consent to make the change);

– the new reference rate of interest could be the Bank of England base rate. But when replacing the reference rate, firms should treat their customers fairly; and

– there may be some cases where a change does not happen before the end of 2021. The FCA plans to consult on providing a temporary solution for certain products, which may include mortgages, that have not changed by that time (but such a solution will be “time-limited”).

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Policy Statement published on changes to FCA Handbook to reflect breathing space

On 26 February 2021, the FCA published Policy Statement 20/1: ‘Breathing Space Regulations – changes to our handbook’ (‘PS 20/1’) to make changes to the Consumer Credit Sourcebook (or ‘CONC’) to implement the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium (England and Wales) Regulations 2020 (which come into force on 4 May 2021).

The changes (which come into force on 4 May 2021) are:

– two new definitions will be introduced: ‘Debt Respite moratorium’ and ‘moratorium debt’;

– CONC 5D.3.3G(5) will be amended to say that if a Debt Respite moratorium is in effect for a customer’s overdraft and a firm is complying with its obligations under that moratorium, the firm is treating the customer with appropriate forbearance for the portion of the overdraft subject to the moratorium (and the firm is not required to take the steps under CONC 5D.3 during the moratorium);

– there will be changes to CONC 6.7 so that complying with a Debt Respite moratorium is considered to be compliance with a firm’s obligations under CONC 6.7 (in effect, a moratorium is equivalent or more favourable steps); and

– firms can take into account the period under a Debt Respite moratorium when considering a ‘reasonable period’ under CONC 7.3.11R.

The FCA does not consider any changes are necessary to CONC 8, or to MCOB.

PS21/1 makes it clear that “consumers ought to be able to benefit from the protections of both the Regulations and our rules” (see paragraph 1.14). The FCA’s view is that “advising a customer on eligibility for a moratorium clearly falls within the regulated activity of debt counselling”.

The FCA also says that any “communications required by our rules should continue to be made. The Regulations do not prevent a credit from contacting a customer where this is required under the Consumer Credit Act 1974 (CCA) or FCA rules (Regulation 11). Section 3.9 of the Insolvency Service’s guidance also explains the effect of the Regulations on communications with customers” (see paragraph 3.5).

The FCA says MCOB does “not require firms to inform customers about breathing space specifically, but a firm may choose to do so” (see paragraph 3.7).

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Butterworths Financial Regulation Service – updated commentary on CONC and MCOB, and new commentary on BCOBS, published

Issue 113 of Butterworths Financial Regulation Service has now been published. I’ve written a new chapter on CONC 8, and reviewed and revised the existing chapters on CONC (including adding the latest COVID-19 guidance published by the Financial Conduct Authority).

I’ve also written new chapters on MCOB 2A, 3B, 4A and 6A, and reviewed and revised the existing chapters on MCOB.

I’m also delighted to have published brand new commentary on BCOBS. There will be additional new chapters over coming issues but this issue has:

– an introductory chapter on BCOBS; and

– commentary on BCOBS 1, 2, 2A and 3.

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FCA announces further proposals to support mortgage borrowers impacted by COVID-19

Late yesterday afternoon, on 2 November 2020, the UK Financial Conduct Authority published a press release setting out its further proposals to support mortgage borrowers impacted by COVID-19. There is a draft further updated guidance for firms and a draft updated additional guidance for firms.

The FCA proposes:

– those who have not yet had a payment deferral will be eligible for two payment deferrals of up to six months in total;

– those who have had one payment deferral, will be eligible for another payment deferral of up to three months;

– those who have restarted repayments after an initial payment deferral will be eligible for another payment deferral of up to three months; 

– to allow borrowers until 31 January 2021 to ask for a payment deferral;

– if borrowers can afford to make repayments then they should continue to do so;

– borrowers should hold off contacting their lender until the enhanced measures are in place; and

– to stop any repossessions (without the borrower’s consent) before 31 January 2021.

The FCA has invited comments by 10am on 5 November 2020.

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FCA to announce further support for mortgage borrowers

On 31 October 2020, and following the Prime Minister’s announcement of a further month-long lockdown for England, the UK Financial Conduct Authority issued a press release saying it will announce further support for mortgage borrowers on 2 November 2020.

It seems likely that:

– If a mortgage borrower has not had deferral already because they are unable to make their repayments because of COVID-19, they will be entitled to ask for deferral of up to six months.

– If a mortgage borrower has already had a payment deferral because of COVID-19 of less than six months, they will be entitled to ask for another deferral so the maximum total deferral is six months.

– If a mortgage borrower has already had a payment deferral because of COVID-19 of six months, and are still unable to make their repayments because of COVID-19, they will need to contact their lender for ‘tailored support’.

The FCA is also considering the implications of this approach for the consumer credit industry.

UK Finance and the Building Societies Association have published a joint press release following the announcement.

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FCA publishes ‘Dear CEO’ letter to mortgage intermediaries

On 29 October 2020, the UK Financial Conduct Authority published a ‘Dear CEO’ letter to mortgage intermediaries. The FCA says the “market is working well but there are potential harms“.

The letter also says:

– the FCA will prioritise its focus for supervision work on the second charge and lifetime mortgages markets;

– for second charge lending, the FCA will review the suitability of advice, if customers are getting a product that meets their needs and if customers have understood the product and are being treated fairly;

– for lifetime mortgages, the FCA has three areas of concern: (a) personalisation of advice, (b) insufficient challenging of customer assumptions and (c) a lack of evidence to support to suitability of the advice.

– mortgage fraud is an inherent risk within the sector (and firms should be alive to such risks);

– firms should be aware of cyber risks;

– firms should have appropriate oversight in place for all advisers, including appointed representatives;

– there should be appropriate oversight of trading names; and

– firms should consider the impact of Brexit.

The FCA plans to write to firms in December 2021 with an updated view on the risks posed by mortgage intermediaries.

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Butterworths Financial Regulation Service – updated commentary on CONC, and new commentary on MCOB, published

Issue 112 of Butterworths Financial Regulation Service has now been published. I’ve written a new chapter on CONC 6, and reviewed and revised the existing chapters on CONC (including adding the latest COVID-19 guidance published by the Financial Conduct Authority).

I’m also delighted to have published brand new commentary on MCOB. There will be further new chapters over the coming issues but this issue has:

– an introductory chapter setting the scene on mortgage regulation;

– commentary on MCOB 1, 10, 10A, 12 and 13.

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HM Treasury publishes revised draft statutory instrument: the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020

Earlier today, on 10 September 2020, HM Treasury published a revised statutory instrument: the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020.  This replaces the draft published on 15 July 2020.

You can view the draft revised statutory instrument by clicking here, and view the explanatory memorandum by clicking here and the impact assessment by clicking here.