The financial regulator will have to exercise strong supervision over banks and building societies to ensure that 'mortgage prisoners' are offered the same choice of deals available to other customers, the Financial Services Consumer Panel has said.
The Financial Services Authority has watered down original proposals in its Mortgage Market Review (MMR) which would have allowed lenders to lock in existing borrowers at high standard variable rates when they needed to remortgage. Lenders will be allowed to "switch off" new, more stringent requirements on affordability and interest-only borrowing for customers who want a new product without increasing borrowings. "Lenders will also be able to use these arrangements to take on the customers of other lenders," the FSA said.
Adam Phillips, chairman of the consumer panel which was highly critical of the inflexibility of the original MMR, said the FSA was now acting "to prevent exploitation and abuse by firms". He said: "The key thing is this will require quite close supervision, because borrowers may not be as aware of the conduct of business rules as the lender is. They may not be aware there is a better rate and they could be offered it."
The panel had argued for any tightening up of lending criteria to be delayed.
The FSA has said the new rules will not affect lenders' ability to offer higher loan to value mortgages to first-time buyers.
Borrowers will have to take financial advice when signing up to any mortgage when the regime takes effect in 18 months' time, though not if there is a "simple contract variation" when switching to a new product.
But Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, said this would be "bad for consumers", adding: "I think allowing a consumer to just tick a box without fully understanding the consequences is a weakness in the proposals."
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