Lenders and brokers in the second charge
mortgage market need to consider how
they advise customers, assess affordability and charge
fees.
A Financial Conduct Authority (FCA) review, published today,
found that weaknesses in some firms' practices could put
borrowers, particularly those consolidating debt, at increased
risk of financial harm.
Second charge mortgages are often used by customers with high
existing levels of debt and low financial resilience. The FCA's
review found examples of good practice across the sector but also
issues that raise concerns about whether firms are
meeting expectations, including under the Consumer
Duty. The issues identified in the review
include:
- Affordability assessments that appeared
to overlook key living expenses
- Advice that steered customers towards debt consolidation when
it was not clear if it was appropriate
- Inadequate record keeping
- Unclear fees, often added to loans, making comparisons
difficult
David
Geale, executive director of payments and digital finance at
the FCA, said:
“The second charge market is relied on by people
often already heavily in debt. It's vital it works
well, but we've found that standards are not
always where they need to be. This needs to
change.”
The FCA is calling on all second charge firms to
consider the findings carefully and take appropriate
action. Brokers for the wider mortgage
market should consider the findings, especially on
record‑keeping and quality assurance, and whether they can
make improvements.
The regulator has continued its engagement with
the firms included in the review to ensure shortcomings are
addressed. While the regulator has already
seen some of the market act on its calls to
improve customer understanding, over the next year it
will:
- Continue to work with firms to drive improvements across
the second charge market
- Keep monitoring second charge
firms and take action where it has concerns –
using the full range of regulatory
powers where needed
- Begin to consider any mortgage policy changes needed to
support good outcomes for consumers consolidating debt
Notes to editors:
- Copy of Good and Poor Practice document available on request
from the press office.
- Second charge mortgages let homeowners borrow extra money
using the equity in their home, without having to change their
existing mortgage.
- Second charge mortgages make up a small proportion of the
total mortgage market - typically less than 4% of
regulated mortgage sales.
- The FCA enables a fair and thriving financial services market
for the good of consumers and the economy. Find out
more about the FCA.
