UK regulator releases responsible lending findings

The FCA this week released two reports: the Responsible Lending Review into mortgage lending decisions, and the feedback statement following the October 2015 Call for Inputs on competition in the mortgage sector.

The Responsible Lending Review assessed how firms are applying the responsible lending rules introduced in April 2014 following the Mortgage Market Review (MMR).

In a statement, the FCA noted that overall, mortgage providers have implemented responsible lending rules in line with the FCA’s expectations.

“Some firms need to make process improvements to help them consistently assess and record their lending decisions,” the regulator said.

“Some firms could be more proactive and consistent in making use of flexibilities and exceptions to the responsible lending requirements for existing customers,” it said.

The report found no evidence that the rules have prevented firms lending responsibly to consumer groups such as older borrowers and the self-employed.

“However, we are especially mindful that older consumers represent an increasing proportion of the UK population, and it is important that the mortgage market continues to develop a range of products that can meet their needs,” it said.

“Potential issues relating to lending to older borrowers will be included in our wider work on the ageing population following our recent discussion paper.”

The second paper released by the UK regulator this week, the Call for Inputs on competition in the mortgage sector, received significant engagement from across the industry.

The FCA said the responses can be categorised into four main themes:

• Consumers face challenges in making effective choices, particularly when it comes to assessing and acting on information about mortgage products, with intermediaries being key to the process.
• There are opportunities to make more effective use of technology in the provision of information and advice.
• Commercial relationships between different players in the sector’s supply chain - in particular the use of panels - might give rise to competition concerns.
• Certain aspects of the regulatory framework might have a negative impact on competition.

The FCA said it will launch a targeted market study in the fourth quarter of 2016, focused on consumers’ ability to make effective choices, with a view to improving the way competition works in consumers’ best interests.

“For millions of consumers a mortgage is one of the biggest financial transactions they will enter into in their lifetime, so it’s encouraging to see firms embrace the spirit and the letter of our rules,” Christopher Woolard, director of strategy and competition at the FCA, said.

“At the same time, there appears to be more to be done to improve competition in the mortgage sector. Competition can play a key role in ensuring that the sector works well, delivering lower prices, better products and choice, and more innovation,” he said.

“Based on the evidence we’ve collected so far, we intend to launch a forward-looking market study later on this year, with particular focus on the roles played by intermediaries and panels.”

[Related: UK lending still needs work, says regulator]