Consumers interests at heart of FSAs new mortgage regime

The FSA proposals provide protection to consumers throughout the lifetime of their mortgage. In addition to improving the information given to potential borrowers before they commit themselves to a loan, the FSA is consulting on rules that would require lenders to keep customers informed of any important changes to their mortgage and to treat fairly those of their customers who have arrears or face repossession.

With the range and complexity of mortgage products now on offer, there is more need than before for clear information which highlights the key features of the loan and any hidden costs and catches.

The full proposals are set out in a consultation paper, the draft Mortgage Sourcebook issued today.

Under the Financial Services and Markets Act, the FSA has not been given responsibility for regulating mortgage advice given by lenders, brokers and other intermediaries. However, the proposals set out in today's consultation paper make lenders responsible for taking reasonable steps to ensure that intermediaries comply with the new pre-sale disclosure requirements.

Michael Folger, Director of Conduct of Business Standards Division, said:

"These days borrowers need help finding their way through the mortgage maze.The aim of these proposed rules is to make sure that borrowers are properly informed and properly treated, from the day that they first consider taking out a mortgage to the day that they finally redeem the loan. The new regime is focused on cutting through the jargon and introducing consistent standards.

"Responsible lenders will support proposals that will give consumers the information that they need to make an informed and sensible decision about one of their greatest financial commitments. In todays markets lenders book much of their business through intermediaries. These proposals would make lenders responsible for the quality of early information provided to all their customers, and not just those who deal direct."

Notes for editors

1. The FSA consulted on its high level approach to mortgage regulation in November 2000 (CP70 Mortgage Regulation: The FSAs high level approach). The draft rules and guidance take into account responses received during that consultation, and the accompanying Consultation Paper includes feedback on CP70. The proposals have also been informed by consumer research on the mortgage buying process, and on the draft pre-sale disclosure document. This research is also published today in a separate Consumer Research volume entitled Choosing a mortgage: report of a research review and qualitative research on the mortgage buying process; and as an Annex to the Consultation Paper respectively.

2. HM Treasury published the details of the scope of the FSA regulatory regime in February 2001. This was approved in Parliament in March 2001. Amendments to the definition of regulated mortgages has brought into the FSA regime a range of short-term lending secured by first charges, such as lending for home improvements, debt consolidation, secured credit cards and bridging loans.

3. The FSA set up an External Advisory Group, which has advised on the detailed development of the regime. The Group comprises practitioners (from various parts of the mortgage market) as well as consumer representatives. A list of members of the group are published on the FSA website.

4. The FSAs proposals include:
   • rules covering the content of mortgage advertisements to help consumers assess mortgage products;
     
   • a standardised disclosure document before sale, so customers are better able to shop around between lenders;
     
   • post-sale information requirements so customers remain informed about the mortgage and are made aware of any changes in costs; and
     
   • proposals for the fair treatment of consumers where they fall into arrears or face repossession.

5. The FSA estimates that the proposals put forward in this consultation paper would cost the industry 53 million one off and 30 45 million on a recurring basis. For consumers this would be equivalent to an increase in the monthly cost of a mortgage in its first year of 2.00 - 2.70. In the year 2000, gross mortgage advances were 119 billion (Bank of England data).

6. The cost estimates above can be compared with the cost to the industry that would have been associated with the regulation of mortgage advice. The FSA previously estimated that this would cost the industry 128 million one off and 57 million on a recurring basis (in todays prices).

7. The FSA is also publishing today a Bulletin announcing plans to add mortgages to the FSAs Comparative Tables. Details can be found on the FSAs website ww.fsa.gov.uk/pubs/other/tables

8. The FSA aims to ensure that the transition to the new regime is a smooth one. Mortgage lenders and administrators will be able to apply for authorisation later this year. The FSAs mortgage regime is currently expected to come into effect no later than 31st August 2002.

9. Responses to this Consultation Paper should be received by 14 September 2001

10. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

11. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.