Implementation group on changes to deliver switching options for mortgage prisoners

The Group discussed the analysis undertaken for the Mortgage Prisoner Review Report[2] which the Government laid before Parliament on 29 November 2021. Many of the Implementation Group had directly contributed to the Review, sharing their experiences where new switching options had been offered or detailing their thinking if choosing not to amend their standard underwriting approach.

We explained how regulatory data had been used to give a factual assessment of the reported characteristics of the wider population of borrowers and mortgages in closed books with inactive firms compared to reported characteristics of borrowers and mortgages with active lenders. Implementation Group members welcomed the context provided by this assessment.

The Implementation Group was also talked through the analytical approach we adopted to give an up-to-date estimate of the number of mortgage prisoners in closed books with inactive firms and their loan and borrower characteristics. The Implementation Group made a small number of suggestions about additional analysis that might confirm, or add to, the analytical findings.

We highlighted the Review assessment of the regulatory changes made. Implementation Group members agreed that regulatory barriers had been removed and had no further suggestions for change. The Review findings regarding the limited evidence of any change in lending appetite were also recognised.

Finally, given the Review findings and the improved market understanding of the modified affordability assessment the Implementation Group considered the need for further meetings. Members subsequently agreed the Implementation Group had completed its intended work and could be dis-banded.

Next steps

Government and industry will use the Review to consider if there are further practical and proportionate solutions that will enable borrowers to switch their mortgage where they would benefit from doing so. We will continue to provide any necessary regulatory assistance to support Government and industry with this.

The Group considered feedback from earlier enquiries on whether the level of borrower contact had recently changed, and if buy-to-let customers were actively seeking switching options. Lender attitudes to borrowers providing copies of mandated communications were also discussed.

The meeting considered the activity reported by the Money and Pensions Service (MaPS). This covered use of its online and telephone services for those struggling to remortgage. The help includes support so borrowers can understand what the changes mean for them and a useful tool that indicates if they might meet lender eligibility requirements. The available information suggested a declining level of borrower contact, which was consistent with the experience reported by Implementation Group members.

We also provided an update on the new Mortgage Prisoner Review. Following a commitment made by Government during the passage of the Financial Services Act, we are reviewing our data to consider the demographic and loan characteristics of borrowers who have mortgages with inactive firms and are unable to switch to a new deal, despite being up to date with their payments. Our analysis will focus on borrowers who are potentially paying more than they need depending on their characteristics. This analysis will inform any potential solutions.

We are also reviewing the effect of our recent interventions to remove regulatory barriers to switching for mortgage prisoners including the modified affordability assessment and intra-group switching. Feedback from the Implementation Group, and experiences of individual firms, were agreed as being important to this review. 

The Group reviewed developments since the previous meeting, starting with the borrower communications from lenders and administrators. These mailings have now been completed, with more than 100,000 communications thought to have been sent out.

The Money and Pensions Service (MaPS) and StepChange shared their experiences of borrowers who followed up on these communications. The Group reviewed the use being made of online resources including self-help pages and the list of intermediaries who have offered to help borrowers.

The subsequent discussion explored borrower and mortgage characteristics that can affect the availability of switching solutions. Common issues identified included:

• interest-only borrowers without repayment strategies to repay capital outstanding
• mortgages with relatively high loan-to-value remaining
• older borrowers with a short term remaining on the loan

These factors, either individually or in combination, could leave borrowers beyond the limit of commercial lending appetites.

Group members also updated on the type of enquiries received by lenders and intermediaries. This included exploring the additional complexity often associated with switching involving a transfer of equity or a change from interest-only to full or partial repayment of capital.

We provided an update following the launch of the Money and Pensions Service (MaPS) online materials on 14 September 2020. The launch went well, with the questionnaire and list of intermediaries now available on the MaPS website. Implementation Group members provided initial feedback for sharing with MaPS to improve the user experience. We encouraged use of these resources and invited further feedback. 

Since the previous meeting of the Group it was noted that products had been launched, making use of the modified affordability assessment. There was strong interest in having an updated aggregate view of market readiness, so we agreed to repeat the survey previously carried out with lender members of the group. This survey would also help us monitor the practicalities of the lender and administrator communications required under the modified rules.  

The Group discussed market intentions regarding publicising the availability of new switching offers. Some merit was seen in there being a list of participating lenders, but it was recognised that this may have limited practical value for consumers as lenders were not intending to accept direct business using their modified approaches. The Group preference was to continue to support a customer journey via intermediaries, meaning that the lender focus was on ensuring that distribution partners were aware of and could access any new switching options.  

We also provided an update on our Consultation (CP20/13)[3] proposals to help some borrowers, including some mortgage prisoners.  

We provided an update on our statement on mortgage prisoners[4], and our consultation (CP20/13)[3] on proposals designed to support some consumers in the mortgage market. We noted that firms would be able to choose whether to make use of our proposed rule change. The potential prudential implications of our proposed guidance to help some borrowers with maturing interest-only and part-and part mortgages was also mentioned.

As a result of the coronavirus (Covid-19) crisis, lenders had previously reported that they would be unable to offer a range of switching options or have processes and systems in place to support remortgaging using our modified affordability assessment as quickly as originally anticipated. We updated on discussions with lenders regarding their readiness to support this. We reiterated our commitment to working with industry to see these changes happen as soon as practicable, and several Implementation Group members highlighted their continuing interest in achieving this.

We updated on work with the Money and Pensions Service (MaPS) to create specific online information and a dedicated phone line, as a key source of information and advice for mortgage prisoners. The online materials would draw on earlier comments from the Implementation Group, and was currently being revised following further feedback from the industry trade body working group.

We also updated on our work with MaPS to create a list of intermediaries who will work with mortgage prisoners to help them find switching options. On 9 July, we announced[5] we wanted to hear from mortgage intermediaries willing to be on this list. The Group considered how the list might be presented to consumers, and we agreed to discuss possible search criteria bilaterally. The list is to be published on the MaPS website in due course. The Implementation Group discussed various timing implications for lenders, intermediaries and administrators regarding the ‘go live’ date for the MaPS materials and we took an action to confirm the planned arrangements with the Group.

We provided an update on the extension to the deadline[6] for contacting customers due to the impact of the coronavirus (Covid-19) crisis, and reiterated that we wanted to see switching options for consumers who previously lacked these in the market as soon as practicable. We also provided an update on our guidance[7] which was published on 20 March.

The Group noted that the extension to the deadline for contacting consumers will be beneficial. The Group updated that lenders have had to divert resource to deal with the impact of the current crisis, and lack capacity to offer new switching options. They highlighted that additional communications from firms might prove confusing or risk being ignored by consumers at this time. The Group also noted that issues around the valuation of properties could make switching more difficult.

The Group highlighted the need to keep this extension under review, to take account of developments regarding the coronavirus and potential shifting lender risk appetites. We noted, as outlined in our Statement[7], that we would keep the extension under review.

The Group discussed issues relating to the process for contacting consumers, including the required communications strategy and which consumers should be contacted. We reiterated that the deadline for agreeing a communications strategy is 1 May 2020.

The Group noted the importance of potential switching options being available, and consumer information resources (e.g. webpage/tool) being operational by the time eligible customers receive a communication letting them know that they might be able to switch their mortgage. We agreed and confirmed our expectation that a tool will be in place before communications are sent out.

Several new members joined the group, these firms looking to help achieve better outcomes for consumers but without using the modified affordability assessment. The objectives and aims of the group have been amended to reflect this broader ambition.

We provided an update on recent conversations had with business-to-business tool providers. The group had asked for these conversations to ensure that tool providers were aware of the range of different ways in which lenders may be offering options that could help consumers previously unable to switch.

We also gave a readout from discussions at the FCA/Industry working group. Group members were made aware of the current thinking for developing a resource to allow consumers to identify intermediaries who may be able to help them access new borrowing options. Intermediaries would be invited to express interest to be part of this. This resource would support a customer journey based on potentially eligible consumers receiving a communication (the group commented on a further version of drafting that firms might want to adapt or use), which then directed consumers to relevant pages or a telephone number.

The group noted that the modified rules had now been available for several months, enabling lenders to start to make business decisions. We raised the importance of new options becoming available for consumers as soon as possible, and the need to understand and monitor market readiness was discussed.

We talked the group through two additional data profiles derived from the information collected previously from firms. These indicated the potential for helping additional groups of consumers, and we agreed to publish these additional profiles.

The meeting concluded with discussion of several questions of interpretation regarding the modified rules published in October 2019. These touched on topics such as the means of checking that consumers were eligible under the rules, using the rules to switch from an interest-only mortgage to a retirement interest-only mortgage, and the nature of costs that might be included in a product or arrangement fee.

The group discussed plans for a model communication to help administrators when making the required contact with consumers who might benefit from a modified affordability assessment. Further drafting changes suggested by the group, and by consumer representatives, had been incorporated so the model communication was close to being finalised. The outstanding action was to confirm how to make the communication available to administrators. Group members identified various ways in which firms might add to or tailor the content, for example if a lender wanted to refer to particular distribution partners. We confirmed that the communication requirement allows firms to include additional messages.

The group saw an important role for intermediaries where there are customers who may be able to benefit from the modified affordability assessment. Options to develop the customer journey and help these borrowers find appropriate intermediaries were considered.

The group then considered our newly published data[8] on the mortgage prisoner population. As requested by the group this analysis covered both mortgages owned by an unregulated entity and those mortgages in a closed book held by an active lender. The presentation of the data reflected profiles previously identified by the group. In the discussion that followed there was a view that some additional profiles would be helpful. We agreed to consider this.

We reiterated our determination to see the rules used to help as many consumers as possible, and for the group to be a means of ongoing support for firms planning to adopt the modified affordability assessments.

We asked about any practical implementation challenges and said we were willing to collate and address questions arising from the group.

As a number of intermediaries joined the implementation group discussions this meeting recapped on the objectives for the group and the discussions to date. We explored the role intermediaries could play in helping eligible consumers to find a lender likely to make use of the modified affordability assessment.

The group considered a presentation on a possible web-based tool for helping identify if a consumer might be helped. This had the potential to draw knowledge both of underwriting standards in the market and credit file information. It could supplement the proposed question set that any consumer is likely to be directed to in communications from inactive lenders and administrators for unregulated entities.

The group concluded the next logical stage in the consumer journey would be to contact an intermediary. Practical challenges were seen identifying those intermediaries willing and able to take on consumers. This was something the intermediaries involved agree to further consider ahead of the next group meeting.

We gave an update on the data collected regarding customers of unregulated entities, and explained how this was being further analysed.

The group discussed issues relating to the upcoming Policy Statement, which would set out our response to feedback on its proposed changes to the responsible lending rules. The Policy Statement has since been published and can be found here[9].

We gave an update on the data collected regarding customers of unregulated entities. The initial findings were discussed, recognising that more work was needed to ensure data quality.

The group again discussed the form of consumer communications to be made by inactive lenders and administrators of unregulated entities. The group agreed that the input from consumer groups would improve the model communication that had been developed. There was also a concern that the communication should not over-promise or raise expectations amongst those consumers who are not likely to find a remortgage option.

The group also considered a draft webpage with suggested filtering questions for potentially eligible consumers. The questions were intended to enable consumers to understand whether they may be able to get a new mortgage deal and provide them with information about their options if not. The discussion covered the importance of keeping the questions short and straightforward to complete.

The group discussed the potential for a web-based solution that would give borrowers an early indication of whether they would be able to switch to a new lender. The group was positive about the use of such a tool; group members agreed to seek views and determine the interest from industry to support such a service.

Finally, it was agreed that there should be a separate meeting to explore the role that intermediaries may play in helping eligible consumers find remortgage options.

We spoke about consultation feedback on how a new mortgage might be identified as ‘more affordable’ under the proposed rules. A simplified approach to this was discussed.

The group discussed in detail the information that would need to be available to consumers to raise awareness of the modified rules if made by the FCA Board and the possibility that consumers may have new remortgaging opportunities. This covered:

• Which consumers should be contacted about possibilities presented by the new way of assessing affordability.
• How to explain the changes.
• Questions for consumers to assess if they may have new remortgaging opportunities.
• Information or guidance needed to support these questions.

Benefit was seen in getting a wider set of views on the messages for consumers. A further sub-group meeting was agreed to develop a potential approach with the intention to get input from other key stakeholders on these messages.

The meeting also considered how lenders will communicate their use of any modified rules, and the support available to intermediaries. The group’s view was that existing means of explaining product availability and eligibility should be used rather than creating an additional standalone tool for intermediaries. It was proposed that distribution issues be considered at the next group meeting, with intermediary involvement in the discussion.

Members agreed the aims and objectives of the group.

We gave a summary of responses to CP19/14[1] and the proposed rule changes confirming the outlined modified affordability assessment would be available if consolidating first and second charge mortgages. Also discussed was whether it was clear how ‘more affordable’ would be assessed for new mortgage products with a discount variable rate. 

We invited views on where clarity on current thinking would be most helpful to lenders in preparing to make use of the proposed new rules. The topics identified could then be considered at future meetings.

The meeting talked through necessary actions for all parties to prepare for, and act on, changes, including:

• confirming our policy position, along with any rule changes
• lenders deciding on their individual approaches to making use of any modified rules
• lenders providing transparency on their approaches to other stakeholders eg intermediaries
• simple and engaging communications direct to consumers
• any necessary consumer resources to inform subsequent decision-making eg webpages and tools
• support available from intermediaries

A sub-group was proposed for lender representatives to explore how individual approaches to the modified rules can be clearly communicated.

A further sub-group was proposed to identify and begin working up the key messages to be conveyed throughout the customer journey.