Are they a "square peg in a round hole"?
The Financial Conduct Authority (FCA) announced changes to its rulebook, during the latest mortgage summit held by the chancellor, to support key commitments made by lenders.
The regulator said lenders would now be able to offer borrowers a switch to interest-only payments for six months, and an extension to their mortgage term to reduce their monthly payments, with the option to switch back within six months. In addition, both can now be offered without an affordability check.
While this news may appear promising for borrowers, brokers, for the most part, are not too keen on the FCA’s rulebook changes. Let’s find out why.
Square peg in a round hole
Rhys Schofield, brand director at Peak Mortgages and Protection, said the changes feel like a ‘square peg in a round hole.’
“Fundamentally, we have an issue where mortgages are now unmanageable for many and we are just shifting the cliff edge by six months,” he said.
Schofield would favour more pragmatic steps around making it easy for customers to downsize, as well as a stamp duty holiday for those doing so.
“Underpinning the whole hot mess that is the UK housing market is also a real lack of housing,” Schofield added. He noted that the market is in “dire need” of a national housebuilding programme to provide affordable homes for people.
Darryl Dhoffer, mortgage expert at The Mortgage Expert, stated that he too was not sure ‘how sharp the pencil was sharpened when the FCA made changes to its rulebook’.
He said that six month interest-only payment relief and 12 month grace repossession periods have been in place for many years through the majority of high street lenders.
“The only big difference it seems is that the latest changes appear to not impact an individual’s credit profile,” Dhoffer said.
Rather than the amendments to its rulebook, Dhoffer said the big call by the FCA should have been an industry cap on lender’s Standard Variable Rates (SVR) to between 0.5% and 1% above the base rate.
This would have, he added, allowed brokers and clients breathing space to make correct informed decisions on new residential and buy-to-let mortgage deals.
“However, more importantly, it would have allowed some breathing room for mortgage prisoners that are unable to product transfer with existing lenders,” Dhoffer said.
Careful consideration
Jonathan Burridge, founding adviser at We Are Money, said customers should be careful before taking up the interest-only option as they may encounter ramifications further down the line. He believes it could possibly prejudice future applications or variations with their current lender.
“Customers need to remember that this is being offered to borrowers who are struggling financially, so, taking up the offer is acknowledging financial hardship, and it could be a question raised in future finance applications that may prejudice their access to credit,” he said.
Much like COVID assistance, Burridge said borrowers should think very carefully about requesting this option. Six months passes quickly, and Burridge believes that the impact of the decision could last much longer.
Meanwhile, Michelle Lawson, director at Lawson Financial, said that people should be cautious if needing assistance, rather than jumping the gun like during the availability of COVID support.
“People should only take the support if absolutely necessary, and get suitable advice around this as there could be other unintended consequences as a result,” she said.
It could also, Lawson said, pose a risk to the original advice given if consumers go directly to their lender and get no guidance around their actions.
Any support is good support
Joe Stallard, director and adviser at House and Holiday Home Mortgages, said that some support is better than none, especially right now.
“Hopefully, these changes will help anyone in dire need by giving them time to put a plan into action,” he said.
However, Stallard said the fact is the government is not going to bail people out, and he added that the Bank of England intend to stop spending to bring inflation down. As such, an inevitable part of this equation, Stallard said, is making sure people feel the pinch.
What impact do you believe the FCA’s rulebook changes will have on the market? Let us know in the comment section below.
