The FCA said that an affordability assessment will not be required where a consumer wishes to change a mortgage with their existing lender (eg a rate switch), providing there is no additional borrowing and no other changes to terms likely to be material to affordability. This provision will also apply to second charge regulated mortgage contracts.
However the report admitted that the change "may lead to a set of customers becoming trapped in contracts with unfavourable terms, leading consequently to some of these customers suffering payment difficulties, and in the extreme, default. The impact might not be very large in the low interest environment of today, but could become more severe were base rates to rise."
The FCA clarified that they "do not believe that it is the intention of the MCD to prevent existing customers from switching products where there is no material impact on affordability, and where that change could be brought into effect through different means."
Additionally, some of the new affordability rules will not apply to borrowers who do not wish to borrow more money and have a good payment history.
The FCA said:
“During consultation we identified a conflict between the MCD and some of our current affordability rules for existing borrowers making changes to their mortgages. As a consequence, we are therefore withdrawing certain enabling provisions as they are not MCD compliant.”
