LONDON (Reuters) - Britain’s financial regulator has told banks to rescue thousands of borrowers “trapped” in poor value home loans, saying the authorities could intervene if need be.
Mortgage “prisoners” took out a loan before tougher rules introduced since the financial crisis left them unable to meet stricter affordability tests for remortgaging to a cheaper deal as interest rates rise.
Banks came to a voluntary arrangement earlier this year to allow such customers to switch if they meet basic conditions.
“We believe this is an important step forward, but the devil is in the detail,” said Christopher Woolard, executive director for competition at the Financial Conduct Authority.
“We are keen to see what impact this agreement has, and to see all lenders able to participate doing so,” he told a conference held by UK Finance, which represents Britain’s banks.
The arrangement could help at least 10,000 customers, but there were an additional 120,000 people whose mortgages are not held by authorised firms.
“I want to see an answer in the unauthorised space,” Woolard said.
If need be, the FCA will discuss with the government whether the watchdog should be given new powers over unregulated parts of the market, he said.
“We need to see a willingness from industry to offer re-mortgaging opportunities to those who currently don’t seem to have them,” Woolard said.
Jackie Bennett, director of mortgages at UK Finance, told the conference that the industry was exploring with the FCA what might be possible for customers of unregulated firms who were not UK Finance members.
“To make this possible it is likely to need handbook changes at the very least, and possibly legislative changes,” Bennett said.
The FCA published interim findings in May of its review of the mortgage market, finding that the sector worked well generally, but that nearly a third of borrowers may not be getting the best deal.
Woolard said the final report with possible action will be published in the first quarter of next year, later than originally indicated.
Bennett said if banks are asked to deal with many new rules at once, it could increase operational risks at a time of Brexit challenges and an increase in cyber threats.
“This is not a call for deregulation or a ‘light touch’, simply a call for appropriate ‘air traffic control’ to ensure that interventions are well considered, sequenced and orchestrated to minimise disruption and operational risks in implementation,” Bennett said.
Reporting by Huw Jones, editing by Ed Osmond