The Financial Conduct Authority (FCA) has confirmed it will look at options to simplify the borrower protection rules that were introduced after the 2008 financial crisis.
The FCA is the UK’s financial regulator, which oversees the conduct of business in the UK to ensure that financial markets are honest, competitive and fair for individuals and businesses, and for the growth and competitiveness of the UK’s economy. It works with financial institutions including banks and insurers, among others, and sets the mortgage responsibility lending rules.
In a recently published letter, the FCA says it is likely to review “the balance between protecting borrowers and access to home loans”. The decision is likely to please lenders, in particular.
The letter is in response to the government’s request to the UK’s main regulators to make suggestions for reform that would have a positive impact on economic growth.
Stricter rules were brought in to protect borrowers from taking out mortgages they could not afford, in particularly in the case where higher rates of interest would increase payments. It was largely the reckless lending practices in place prior to the financial crisis that caused some financial institutions to be at risk and many householders to lose hard earned equity, plunge into negative equity or lose their homes.
Nowadays, few borrowers miss mortgage repayments or have their homes repossessed, which some suggest is evidence that the rules have been too strict.
In the letter, chief executive of the FCA, Nikhil Rathi, said: “We will begin simplifying responsible lending and advice rules for mortgages, supporting home ownership and opening a discussion on the balance between access to lending and levels of defaults.”
While lenders are understandably keen for mortgage protection rules to be diluted, some analysts and borrowers are concerned that it may undo the lessons learnt from the financial crisis. There are also suggestions that the “north-south divide” in affordability would compound the issue.
The FCA estimated in 2021 that 195,000 mortgages existed in “closed books with inactive firms” (a lender that no longer lends to new customers or which is not regulated by the FCA). Only half of these were eligible to switch mortgages, and 47,000 were “mortgage prisoners”. These are people up to date with payments but unable to switch to a more favourable deal because their loan and/or “borrower characteristic” prevented them from being eligible to current lenders. A further 34,000 were not up to date with payments.
Lenders might be a little more wary of reducing the barriers faced by potential mortgage borrowers. They were put there for a reason.