30Nov

FCA reports on gender diversity

The Financial Conduct Authority (FCA) has published research which shows that the proportion of women in senior roles within financial services has remained largely unchanged since 2005. At present, women make up just 17% of those registered as approved persons, although this figure is slightly higher, at 23%, in larger firms.

Women also comprise just 5% of those carrying out adviser roles and other customer-facing functions, based on the list of approved persons on the Financial Services Register. Here the report says:

“Despite the scrutiny and public commitments to evolve, financial services have seen little if any improvement in gender diversity.

“In addition, there is evidence to suggest that women in senior positions at UK financial firms tend to represent support functions, rather than profit-generating ones.”

The average investment management firm has women making up 26% of its senior management, which was the highest for any of the 14 categories of firm used in the survey. At institutional brokerages and smaller investment banks women typically comprise little more than 5% of the total number of senior managers.

At larger firms who were included in the study, the proportion of female senior managers ranged from less than 5% to more than 40%.

330 firms have now signed up to the Women in Finance Charter. This was launched in 2015 in response to the fact that women made up just 14% of executive committee members within the financial services industry. By signing up to the Charter, a firm is making four pledges:

  • Appointing a member of the senior executive team as being responsible and accountable for gender diversity and inclusion
  • Setting internal targets for gender diversity in its senior management team
  • Publishing progress annually against these targets in reports which will be posted on the firm’s website
  • Linking the remuneration received by the senior executive team to whether the firm can deliver against these internal targets on gender diversity

At the recent Annual Summit of trade association The Personal Investment Management & Financial Advice Association (PIMFA), Holly Mackay, Founder and CEO of financial guidance website Boring Money, spoke about the benefits of firms embracing diversity, by saying:

“The industry is stuck and thinks about things in certain ways because Boards and firms often look the same and come from very similar backgrounds – it can feel like a club that not everyone is invited to join”.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

29Nov

FCA bans director who illegally transferred salary and bonuses to his wife

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have imposed a ban and fine on the CEO of a small Scottish mutual insurance society. The regulators found that he acted improperly by transferring excessive amounts of his own remuneration to his wife, with the aim of reducing the tax liability.

The CEO had always paid a proportion of his own salary to his wife as she provided out of hours administrative support and occasional hospitality at home. Up until 2010 she was paid between £5,000 and approximately £10,000 per annum, and the FCA says this was “not obviously unreasonable for the work she was undertaking.”

However, between 2010 and 2016 he transferred more than £200,000 to his wife, and in the 2015/16 tax year her remuneration (including bonuses) was £52,000, which was higher than for anyone within the firm, with the exception of her husband.

The FCA says that the firm’s Board and Remuneration Committee were aware she was receiving some remuneration. However, this Committee did not know how much she was receiving, and the FCA says that the CEO took steps to conceal information from the Board and Committee. He also created false minutes of meetings to make it look like the arrangement had been approved, and on one occasion the falsified minutes were sent to the PRA.

The FCA believes that he was able to avoid £18,000 in income tax by making these arrangements.

The FCA Decision Notice says:

“The Authority considers that, during the Relevant Period, the payment to Mrs [surname] of a proportion of Mr [surname]’s salary and, on four occasions, all or part of his bonus, resulted in Mrs [surname] receiving remuneration in excess of what was reasonable for the work she was undertaking, and was deliberately arranged by Mr [surname] in order to reduce his tax liability. Mr [surname] was aware that [name of firm]’s Remuneration Committee had not approved the amount of Mrs [surname]’s salary or these bonus payments being paid to her, and that Mrs [surname] had not carried out any additional duties, or other work, which justified the level of remuneration she received.”

The ban and fine is subject to an appeal to the Upper Tribunal. However, the FCA says that the lack of integrity he displayed justifies a fine of £78,318 and a ban from holding any role at any authorised firm.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

28Nov

What’s in the party manifestos relating to financial services?

As the country prepares to go to the polls on December 12 for the third General Election in the last four and a half years, what is in the party manifestos regarding financial services?

Conservative

  • Exit the European Union via the withdrawal agreement negotiated by Boris Johnson – all Conservative candidates have signed a pledge to vote in favour of the agreement. The UK’s exit on January 31 would then trigger a second phase of negotiations. The transition period – lasting until December 2020 – will preserve the existing UK-EU trade relationship while talks are held relating to their future trade relationship
  • No increases in income tax, VAT or National Insurance
  • The National Insurance lower earnings threshold will rise to £9,500 in 2020. There is also ‘an ultimate ambition’, with no timescale mentioned, to raise this to £12,500
  • Maintain the pension ‘triple lock’, where the state pension rises by the highest of 5%, the Consumer Prices Index rate of inflation and average earnings growth
  • Conduct a review designed to assist those who earn between £10,000 and £12,500 and who have been missing out on pension benefits because of a loophole affecting people with net pay pension schemes
  • EU migrants will only be able to access unemployment, housing, and child benefit after five years
  • It will no longer be possible to claim child benefit for children living overseas
  • Encourage a new market in long-term fixed rate mortgages to reduce the cost of deposits
  • Maintain corporation tax at 19% – the party previously had a policy of reducing this to 17% in the longer term

Labour

  • Delay Brexit beyond the current exit date of January 31 and instead negotiate a new deal with the EU, which is likely to include a permanent customs union. A referendum will then be held where the options will be to leave the EU on the basis of the new deal, or remain in the EU
  • The threshold for the 45% income tax band will be reduced to £80,000, while those earning £125,000 or more will be subject to a new 50% tax band
  • Income tax and National Insurance thresholds will be frozen for those earning less than £80,000
  • Dividend income and capital gains will be taxed according to the income tax regime
  • Corporation tax, currently at 19%, to rise to 21% from April 2020, 24% from April 2021 and 26% from April 2022. Companies with annual turnover of less than £300,000 will pay 21% from April 2021
  • Increase the living wage to £10 per hour and extend its scope to all employees aged 16 or over
  • Design a system of recompense for women affected by the rise in state pension age
  • Maintain the state pension age at 66
  • Maintain the pension ‘triple lock’
  • Large companies will be forced to give a 10% ownership stake to their employees
  • One-third of places on company boards to be reserved for elected worker-directors
  • A reduction in average full-time weekly working hours to 32, implemented over the next decade

Liberal Democrat

  • Revoke Article 50 on the first day of a Lib Dem government and remain in the EU. The party would be willing to co-operate with any other party who promises a referendum
  • Staff in listed companies with more than 250 employees will be granted a right to request shares
  • Listed companies with more than 250 employees will need to have at least one employee representative on their boards and this person must have the same legal duties and responsibilities as other directors
  • Companies with more than 250 employees will be required to monitor and publish data on gender, BAME, and LGBT+ employment levels and pay gaps
  • Increase all income tax rates by 1%, with the funds earmarked for NHS spending
  • Increase corporation tax to 20%
  • Introduce a new minimum wage for employees on zero-hours contracts that is 20% higher
  • Design a system of recompense for women affected by the rise in state pension age
  • Allow councils to raise council tax by as much as 500% where a home is purchased as a second home
  • Provide government-backed tenancy deposit loans for all first-time renters under the age of 30

Brexit Party

  • Leave the EU without a deal on January 31 2020
  • Abolish inheritance tax
  • Reduce VAT on domestic fuel to zero
  • Companies with pre-tax profits of less than £50,000 will not have to pay corporation tax
  • Design a system of recompense for women affected by the rise in state pension age

Scottish National Party

  • A Brexit referendum with Remain on the ballot paper
  • Increase the living wage to £10 per hour and extend its scope to all employees aged 16 or over
  • A doubling of the Employment Allowance from £3,000 per year to £6,000. This allowance is the National Insurance discount that is provided as a reward for companies that increase employment levels
  • Maintain the pension ‘triple lock’
  • Campaign for a reduction in the payday loan price cap and for a new price cap on credit cards and unauthorised overdrafts

 

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

27Nov

FLA responds to FCA vulnerability guidance

The Finance & Leasing Association (FLA), a trade association for the UK consumer credit, motor finance and asset finance sectors, has become the latest organisation to respond to the Financial Conduct Authority (FCA) consultation on vulnerable customers.

As is the case with other sectors, the FLA response calls on the FCA to clarify how a firm’s compliance or non-compliance with the guidance could leave them open to FCA enforcement action and/or having complaints upheld by the Financial Ombudsman Service. The regulator acknowledges that the proposed vulnerable customer guidance does not create any new rules, but it does appear to impose new requirements on firms, such as:

  • Vulnerable customers should receive outcomes that are at least as good as those experienced by non-vulnerable customers
  • There needs to be consistency across different firms and sectors of the industry so vulnerable customers receive fair treatment regardless of the product they are buying/considering buying, or the nature of the financial service they are accessing

The response document from the FLA says:

“The draft guidance carries some inconsistencies, which need clarification. For instance, it states that firms do not need to follow the draft guidance in order to achieve compliance with the Principles, but later states that the guidance may be relevant to an enforcement case. The FCA needs to be absolutely clear on their expectations regarding this point, as the implications for firms regarding enforcement could be extensive. Firms will have confidence in exercising their judgement when they are clear about their obligations and do not feel at risk of regulatory enforcement (as well as the risk of inconsistent treatment by FOS and CMCs).”

The Association then says work needs to be done to persuade customers to disclose their vulnerabilities at the start of a relationship with a firm. It cites the example of customers wishing to hide their vulnerabilities, fearing that otherwise their credit application would be declined.

The FLA also expresses concern over the possibility that the FCA might be expecting some firms to adopt practices and procedures that may be disproportionate to the size and resources of smaller firms, saying:

“In our experience, firms are already aware of their obligations under the Principles. There should not be substantial change to the fundamentals of the processes firms already have in place. Instead, effective vulnerability guidance will lead to useful enhancements in the treatment of vulnerable customers. Again, we stress that this enhanced practice needs to consider the differing levels of resource within firms and be considered proportionately.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

24Nov

Survey suggests women are more risk averse when it comes to investments

Research by Cass Business School and the University of Bristol has shown that men are more likely to take financial risks than women, and that younger and older people are more risk averse than those in middle age.

The findings of its ‘Quantifying Loss Aversion: Evidence from a UK Population Survey’ also included:

  • Single people may accept more risk than those in a relationship; and widowed, divorced and separated people were less likely to take risks than those in a relationship
  • Individuals with children are more risk averse than those without children
  • People with a limited grasp of financial matters are more risk adverse than those who have a better knowledge
  • People in poor health are also particularly risk averse

It may have been expected that individuals in social class A – higher professional and managerial occupations – would be less risk averse than social class E – never worked and long-term unemployed – but the researchers found that individuals in social class B – lower managerial and professional occupations – were more risk averse than expected. Respondents from class B were, on the whole, more risk averse than class C – supervisory or clerical and junior managerial, administrative or professional; and skilled manual – and class D – semi and unskilled manual workers.

Readers of the Financial Times, Times and Telegraph newspapers are the least risk averse, but readers of the Guardian were found to be the most risk averse, ranking ahead of readers of the major tabloids in this respect.

The researchers commissioned YouGov to survey 4,000 UK adults, with the participants selected to provide a representative spread of gender, age class, marital status, class, education, personality types, financial understanding and income.

Professor David Blake, a co-author of the report and Director of the Pensions Institute at Cass, suggested that the UK’s financial advisers could use the results of the survey in a number of ways. For example, he believes that one of the reasons women often have smaller pension pots than men is that they have kept their retirement savings in low risk vehicles which offer limited growth potential, and that individuals from some of the more risk averse groups may need to be prevented from making poor investment decisions. Conversely, he suggested advisers may sometimes need to temper the natural instincts of their clients who want to invest in high risk areas.

Prof. Blake said:

“Advisers can also use the fact find to design nudges to improve their clients’ welfare by moving them away from poor investment decisions that reflect their behavioural biases. For example, women, because they are more risk-averse than men, would be more comfortable with lower-risk investments. Over a long investment horizon, such as that involved in building up a pension pot, this behaviour has been described as ‘reckless conservatism’ – women with the same salary history as men would, on average, have lower pensions as a result.

“To avoid this, ways may need to be found of nudging women away from their comfort zone. One common way to do this is to have a gender-neutral default investment fund that involves a more aggressive investment strategy at young ages than women would normally choose. The same strategy would apply to young people who are also extremely risk averse.

“On the other hand, men’s investment overconfidence can lead to ‘reckless adventurism’. This is not necessarily desirable at older ages close to retirement, since there is less time to recover from a severe fall in stock markets. To avoid this, ways need to be found of guiding men away from this type of behaviour. Again, one way to do this is to design a gender-neutral default investment fund to involve a less aggressive investment strategy at older ages than men may otherwise choose.

“There are also clear benefits from improved financial understanding. Risk and relative loss aversion are lower as is the willingness to take risks when facing losses the greater is an individual’s level of financial understanding.”

 

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

22Nov

Chancellor writes to FCA and other bodies to clarify their remit

The Chancellor of the Exchequer, Sajid Javid, has written to the Financial Conduct Authority (FCA), the Prudential Regulation Committee (PRC) at the Bank of England and the Financial Policy Committee (FPC). The letters set out the Chancellor’s view of what each organisation’s remit should be.

In his letter to FCA chief executive Andrew Bailey, Mr Javid mentions that the Government wants:

  • To see increased competition across all sectors of the financial services industry, but especially in retail banking
  • London to maintain its position as the leading international finance centre
  • To see increased innovation within financial services
  • Financial services to work in the best interests of consumers and customers to receive better outcomes

Confirming that the Government’s priority is to deliver strong and stable growth, the letter to Mr Bailey says:

“The FCA’s main contribution to this economic policy is, working with the Bank of England’s Financial Policy Committee and the Bank of England acting in its capacity as the Prudential Regulation Authority, to protect consumers, promote competition in financial services and to protect and enhance the integrity of the UK financial system. A strong and stable financial system supports economic growth, helps achieve improved outcomes for consumers, facilitates productive investment and underpins the UK’s position as an important global financial centre.”

The PRC and FPC letters were both sent to Bank of England governor Mark Carney, and here Mr Javid calls on the various organisations to work together to achieve a common goal. The FPC letter says:

“The government is also committed to UK financial services being effectively regulated; securing the right balance between a financial sector that is globally competitive and secure over the long-term. The FPC’s main contribution to these goals is protecting and enhancing financial stability in the UK, working in tandem with the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). The government believes that a strong and stable financial system supports economic growth, facilitates the provision of finance to support the expansion of the economy’s productive capacity and underpins the UK’s position as an important global financial centre.”

On November 19 2019 the Times newspaper reported that Mr Javid is likely to remain as Chancellor should the Conservatives win the General Election.

 

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

20Nov

FCA announces new board appointments

The Financial Conduct Authority (FCA) has welcomed three new non-executive directors to its board: Liam Coleman, Alice Maynard CBE and Tommaso Valletti. They will each serve a three-year term, which commenced on November 5 2019.

Appointments to the board are not made by existing members of the regulator’s executive function, or by the CEO. Instead these individuals were appointed by John Glen, a Treasury minister who, until the General Election at least, holds the Government post of Economic Secretary to the Treasury. Mr Glen’s role is also sometimes known as the ‘City Minister’ and he is the minister who is most closely associated with the UK financial services industry.

Ms Maynard was jointly appointed by HM Treasury and the Department for Business, Energy and Industrial Strategy. She also serves on the board of HMRC, and outside of financial services she is a member of Transport for London’s board and has been the chairwoman of the charity Scope.

Mr Coleman was previously chief executive at the Co-operative Bank and will continue to chair Great Western Hospitals NHS Trust alongside his new role with the FCA.

Mr Valletti is a professional economist with expertise in the fields of regulation and competition. He has worked at a number of development banks and was a senior competition expert at the European Commission.

The three newcomers join these individuals on the FCA’s board:

  • Andrew Bailey – executive FCA board member and chief executive
  • Catherine Bradley CBE – non-executive FCA board member
  • Amelia Fletcher OBE – non-executive FCA board member
  • Baroness Hogg – non-executive FCA board member
  • Charles Randell CBE – chair of the FCA
  • Nick Stace – non-executive FCA board member
  • Sam Woods – non-executive FCA board member
  • Richard Lloyd OBE – non-executive FCA board member
  • Christopher Woolard – executive FCA board member and director of strategy and competition

Mr Glen said:

“The FCA has a vital role in ensuring our financial sector keeps people safe and that firms put customers at the heart of their decisions. So, I am delighted to announce these new appointments to the FCA Board. Their wealth of experience and expertise will be incredibly valuable to the crucial work of the regulator.”

Chair of the FCA, Charles Randell, said:

“I’m delighted to welcome such an impressive group of new non-executive directors to the FCA Board.  They have extensive combined experience both in financial services and a range of public service organisations. As the FCA continues to adapt to deliver its Mission effectively in our rapidly changing world, its Board will continue to provide essential support and challenge.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

19Nov

New money and mental health manifesto launched

New money and mental health manifesto launched

The Money and Mental Health Institute has called on the next UK government to take five decisive steps to boost mental and financial wellbeing across the UK.

  1. Tackle the link between suicide and financial difficulty – here the Institute calls for:
  • Changes to be made to the Consumer Credit Act, as it believes that many consumers feel threatened by the nature of the arrears communications that lenders are legally obliged to send
  • A new regulator and complaints process for bailiffs
  • The new National Suicide Prevention Strategy, due to be launched next year, to explicitly recognise and prioritise the link between financial difficulty and suicide

 

  1. Make money advice available as part of NHS care – here the Institute calls for GPs and primary care professionals to provide information and signposting about money problems to people with mental health problems

 

  1. Help people with mental health problems to stay in work and support those who are too unwell to do so– here the Institute calls for:
  • Changes to sick pay legislation, including arrangements that would facilitate people with mental health illnesses returning to work on a phased basis
  • Measures to ensure everyone gets the benefits they are entitled to, as mental health problems can make it impossible to make telephone calls, attend appointments or fill in complex paperwork

 

  1. Stop firms profiting from consumers’ poor mental health– here the Institute calls for:
  • Consumers to be allowed to block certain types of transactions on credit and debit cards, such as gambling and premium-rate phone-lines; and for them to be allowed to block promotional emails
  • An end to insurance auto renewals, saying that the prospect of shopping around every year is not a realistic option for people with mental illness
  • Some basic minimum standards to be introduced to ensure that people with mental health problems get a fair deal. These should set out the support that customers should receive when they disclose a mental health problem

 

  1. Make it easier and safer for carers to support loved ones with money management – here the Institute calls for reform the Power of Attorney system, to give people and their carers a clearer variety of options for supported decision-making that do not involve giving away full financial autonomy

The charity’s Manifesto calls on firms, regulators and Government to recognise that financial difficulties and mental health issues are not isolated issues, and that there is something of a cycle here, i.e.:

  • A customer who experiences debt problems could suffer mental illness as a result, or
  • A customer with a mental health problem may be forced to give up their job, or their illness might lead to them being unable to make effective financial decisions

The Institute comments that:

  • People with mental health problems are three and a half times more likely to be in problem debt
  • Almost half of all people experiencing problem debt also have a mental health problem
  • People who have money worries alongside a depressive illness are four times more likely to remain depressed throughout the following 18 months, when compared to people who experience depression without having financial problems
  • It believes more than 1.5 million people in England alone are currently trapped in the ‘vicious cycle’ where debt and money problems feed off each other

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

17Nov

FCA highlights just how quickly a scammer can rob pension customers

The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) have carried out research which suggests that a high proportion of consumers would make a decision within 24 hours about whether to accept a new pension investment opportunity.

The average victim of a pension scammer lost £82,000 in 2018, and the FCA says that the average pension saver would take 22 years to accumulate that sum in their pension pot – based on a starting salary of £28,000, with annual pay rises of 2%, taking into account 8% contributions via auto-enrollment and 3% per annum fund growth.

As 24% of people surveyed by the regulators admitted that they would make a decision on a new investment offer within 24 hours, the FCA has published the news story on its website under the headline ‘22 years of pension savings gone in 24 hours’. A pension scam often starts with an individual receiving an unsolicited phone call about a ‘free pension review’, and the individual may later be told that they have only 24 hours to decide whether to take advantage of the scammer’s investment offering.

63% of respondents described themselves as being confident in making decisions about their pension. However, this statistic appears to be contradicted by the fact that 63% of people also said they would trust someone offering pensions advice out of the blue, which is one of the main warning signs of a scam.

The regulators also report that consumers educated to degree level are 40% more likely to accept a free pension review from a company they have not previously dealt with. Consumers with degrees are also 21% more likely than other individuals to take up an offer that apparently allows them to access their pension savings earlier than is normally permitted.

The survey was conducted with some 4,000 UK adults aged between 45 and 65 who all had some form of pension savings.

As the scale of the problem grows, the UK’s financial advisers could have a vital role to play in educating their clients about the threat posed by pension scams

TPR and the FCA suggest consumers should follow a four-step process to guard against pension scams:

  • Don’t trust anyone who they have not dealt with before and who offers a pension review via an unsolicited phone call, email or any other method
  • Check the FCA Register to ensure the firm is authorised to give pension advice
  • Don’t be rushed or pressured into making any decision about pension savings
  • Consider seeking professional advice

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:

“We know many people have big plans for their retirement, whether it’s seeing new places, learning new skills or helping their families out financially. Pension scammers destroy those dreams, often forever.”

Nicola Parish, Executive Director of Frontline Regulation at TPR, said:

“Pension scammers ruin lives, stealing away decades’ of savings with professional-looking websites, ‘expert’ advice and an easy manner making it tough to spot the fraud. But once you sign on the dotted line, often there’s no second chance. Scams can happen to anyone, so before making any decision about your pension, take your time, be ScamSmart and always check who you are dealing with.”

Honey Langcaster-James, a psychologist, added:

“Scammers employ clever techniques, such as seeking to establish ‘social similarity’ by faking empathy and a friendly rapport with their victims. They can win your trust in a short space of time and by engaging with them you leave yourself vulnerable to losing a lot of money very quickly. People need to know how to spot the signs of a scam, so they don’t fall for psychological tricks.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

15Nov

FCA announces new measures for mortgage prisoners

The Financial Conduct Authority (FCA) has confirmed its new rules designed to assist ‘mortgage prisoners’ – borrowers who cannot re-mortgage to a cheaper deal. A consumer might become a mortgage prisoner for a number of reasons:

  • Their original mortgage was granted before more stringent affordability requirements were introduced in the FCA’s Mortgage Market Review (MMR), meaning that they would fail the affordability assessment if they applied for a new cheaper deal
  • They have a mortgage with a firm that no longer accepts new business
  • They have a mortgage with a firm that is not authorised by the FCA

In 2018, the FCA acted to protect the 10,000 mortgage prisoners who were with lenders who were still active – at that time the FCA requested that lenders write to their mortgage prisoners highlighting which of their mortgage products the individual may be eligible to switch to.

The latest proposals from the FCA go one step further and are designed to assist some of the 140,000 or so mortgage prisoners who fall into the latter two categories from the above list. These customers can now apply to a new lender for a re-mortgage, and the lender can then accept their mortgage application if the payments are lower than on the existing mortgage, even if the applicant would not normally pass the lender’s affordability assessment.

The key measure lenders should use here is the total payments during the initial offer period. For example, if a 20-year mortgage had a five-year fixed rate period in which payments were £500 per month, then the total cost is £6,000. If a customer whose previous mortgage involved payment of £7,000 during a five-year fixed period, then should they apply to a new lender that firm can accept their application without needing to carry out the usual comprehensive affordability testing required under the MMR.

A second requirement is that the new mortgage must have a monthly payment that is lower than the monthly payment paid in every one of the last 12 months under the current mortgage.

Inactive lenders and administrators acting for unregulated entities must now write to any customer who might meet the definition of a mortgage prisoner and inform them of the new rules and how switching lender might benefit them.

The new rules only apply to customers seeking a re-mortgage on their existing property and do nothing to assist individuals who wish to take out a mortgage in order to move home. The less stringent requirements also cannot be used where a borrower is seeking to raise additional capital via a re-mortgage, say for debt consolidation and home improvements.

Customers who want to add broker or lender fees to the loan can still do so – for example a customer with a mortgage balance of £30,000 can still re-mortgage under the new rules if they borrow £30,995 and where £995 in fees is added to the loan amount.

Another group of customers who will not benefit from the rule change are those with interest-only mortgages, as to re-mortgage to a capital repayment arrangement will almost always result in payments increasing. Any customer who has missed one or more payments within the previous 12 months cannot make use of the new arrangements either.

The new rules came into force immediately when the FCA issued its Policy Statement in October 2019.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

Posts navigation