The Financial Conduct Authority’s (FCA’s) Mortgage Rule Review discussion paper has been released, with many topics and areas for discussion.
We have summarised some of the highlights of the 70-page-plus Mortgage Rule Review discussion paper, from affordability, later life lending and vulnerable customer treatment to interest-only and shared ownership.
Affordability
One of the most anticipated areas of the report includes changes to the way borrowers are stress tested.
Suggestions in the discussion paper include scrapping the five-year fixed term used, adopting a rent-based approach, amending the 1% minimum stress margin, applying differentiated affordability assessments or the regulator creating a central stress rate.
The FCA said it wants to offer more support to under-served borrower groups, such as first-time buyers, the self-employed and those on variable incomes.
How to get your first-time buyer clients mortgage ready
Sponsored by Halifax Intermediaries
MRR: FCA lays out ways mortgage stress test could change to improve access to borrowing
Later life lending
Later life lending was a key area of the report, with the FCA saying it is becoming increasingly mainstream and demand will continue to grow.
The FCA said it wanted to ensure that its rules were not hindering innovation in the space, adding that some handbook guidance around affordability assessments for retirement interest-only (RIO) mortgages could be restricting lending.
Some considerations mooted in the report include mandatory equity release qualifications for advisers, along with its mortgage advice qualification.
MRR: FCA wants to lower barriers to innovation for later life lending
MRR: FCA considers ‘enhanced advice’ and mandatory equity release qualifications
Vulnerable customers
The FCA said mortgage rules could be simplified to support vulnerable borrowers, including those with joint mortgages and victims of economic abuse.
Suggestions were for the regulator to adopt a principles-based approach to affordability to improve customer outcomes and reduce barriers where there is economic abuse and a payment shock is unavoidable, as well as offering further clarity on when affordability assessments would be needed in cases of financial control or abuse.
MRR: Rules could be simplified to support vulnerable customers
Interest-only and shared ownership
The FCA is looking for views on how it can better support interest-only and shared ownership.
On the interest-only side, it is looking at how it can support part and part mortgages, whether the sale of property could qualify as a credible repayment strategy and more easily moving between repayment and interest-only without setting up a repayment vehicle.
Looking at shared ownership, the regulator said it would look at whether its rules were acting as a “barrier to entry or adding disproportionate costs to processing these loans”.
MRR: FCA seeking views on interest-only and shared ownership