The Association of Mortgage Intermediaries (AMI) and The Intermediary Mortgage Lenders Association (IMLA) have published their responses to the FCA’s Mortgage Rule Review consultation.
The proposed reforms to mortgage lending rules include changes to how affordability is assessed for those with credit issues. Under the proposals, lenders would face fewer barriers when offering flexible repayment arrangements to borrowers with variable incomes, such as the self employed, and to those paid in foreign currencies.
The FCA is also seeking to encourage firms to assess affordability based on a borrower's current financial position, rather than automatically excluding applicants because of minor or historic credit issues.
Other proposed changes include updating affordability guidance for retirement interest-only mortgages, which the regulator said could make it easier for older homeowners to access housing wealth, and revising rules on interest-only and part interest-only lending to provide greater flexibility while retaining repayment safeguards.
'Advice must sit at the heart of the proposals'
The AMI welcomes the regulator’s ambition but cautions that the proposals "will only deliver good consumer outcomes if advice sits at the heart of them".
The Association describes the proposals as "targeted and proportionate" rather than a return to pre-crisis practices, saying there is room to rebalance lender risk appetite responsibly, broaden opportunities for home ownership and open the door to creditworthy consumers currently locked out by existing rules.
The AMI welcomes the FCA’s clear statement that interest-only is only appropriate for certain cohorts of customers with credible repayment strategies, but highlights part-and-part as the more balanced and sustainable option for many consumers, reducing long-term risk while retaining flexibility.
However, it does not believe the FCA’s proposals can be effectively implemented without advice. A key focus of its response is the role of advice in helping consumers understand their options, make informed decisions and ensuring the proposals work effectively in practice.
IMLA also backs the FCA moves towards greater mortgage flexibility, but warns rule changes alone will not fix the first-time buyer challenge.
The Association particularly welcomes the fact that many of the proposals are permissive rather than mandatory, leaving individual lenders free to decide whether to adopt new practices in line with their risk appetite, operational capacity and commercial judgment, while continuing to protect borrowers from over-stretching themselves.
On interest-only lending, IMLA agrees such loans can help first-time buyers stretch affordability and secure a purchase that might otherwise be out of reach, while welcoming the FCA’s confirmation that interest-only will not be made universally accessible. It also cautions against borrowers remaining on interest-only terms for extended periods without building equity in their homes, and suggests that lenders may decide they need to review the credibility of repayment strategies more frequently than the single review currently mandated.
IMLA also urges caution on proposals to accommodate mortgage payments made at irregular intervals, warning that changes could have significant knock-on effects for the definition of arrears and for borrowers’ credit records unless applied consistently across the industry.
Stephanie Charman, chief executive of the AMI, commented: “We share the FCA’s ambition and have been working with the regulator, consulting with our trade body counterparts and seeking insight from our members to inform our response to these proposals, many of which we deem to be sensible and proportionate for the creditworthy consumers the current rules inadvertently exclude.
“But these proposals will only work if lenders and advisers adopt and implement them, otherwise they will fail in their aim to improve access to the market for more first-time buyers. It is important that the areas highlighted by AMI are addressed by the FCA through the final rules and guidance, to ensure firms have the clarity and confidence needed to adopt the proposals effectively.
“That is also why the FCA must clearly define tailored interactive dialogue, with practical examples, to give advisers confidence and limit liability. Advisers also need confirmation that a reasonable assessment made in good faith today won’t be second-guessed decades from now.
“We look forward to continuing to work closely with the regulator to help shape a framework that is practical, proportionate and delivers good outcomes for consumers. We will continue to engage with trade bodies and the wider sector as this work progresses. Our work and engagement also extends into separate, but interlinked, FCA policy work, such as defining holistic advice and the later life market study. Throughout all of this work, our goal is ensuring the intermediary voice is heard and represented.”
Kate Davies, executive director of IMLA, said: “The FCA is asking the right question: are our mortgage rules more restrictive than they need to be? Recent relaxations have been sensible, and there is scope to go further, but nobody, least of all lenders, wants to return to the days of over-exuberant borrowing and lending. Our message to borrowers, particularly first-time buyers weighing up options such as interest-only, is simple: speak to a mortgage adviser. Many people assume they cannot get a mortgage when in reality they may be closer than they think.
“It is also important to be realistic about what regulation can achieve on its own. For decades the UK has failed to build enough homes, and no amount of product innovation can compensate for that. We would strongly support a well-designed successor to Help to Buy – one which increases the supply of smaller homes for first-time buyers and downsizers, avoids inflating house prices, and extends to second-hand properties as well as new-build – alongside a detailed review of Stamp Duty to encourage downsizing and get a sluggish market moving again.”
