Second charge mortgage firms must raise standards for consumer protection
The Financial Conduct Authority (FCA) has instructed second charge mortgage firms to improve their affordability assessments and quality of advice. This follows a supervisory review highlighting areas of concern for consumer outcomes, particularly for vulnerable borrowers.
Affordability and advice under scrutiny
The Financial Conduct Authority's (FCA) recent supervisory review of second charge mortgages identified significant shortcomings in firms' practices.
Affordability assessments were found to be insufficiently robust, with expenditure evaluations often relying on unrealistic assumptions for the customer base.
The quality of advice provided by intermediaries and lenders was also deemed inadequate, particularly for debt consolidation.
Advisers frequently focused on loan eligibility rather than suitability for individual consumer needs and circumstances.
Incomplete record-keeping further hindered proper quality assurance.
The FCA has communicated these findings to firms and expects them to take appropriate remedial action, emphasizing the market's service to vulnerable consumers and the heightened risk of harm.
Broader mortgage market reforms
The FCA's focus on second charge mortgages aligns with its broader strategy to improve consumer outcomes across the mortgage market.
The regulator is simplifying rules to foster adaptation, innovation, and meet diverse consumer needs, from first-time buyers to later-life borrowers.
Past actions include outlining flexibility in interest rate 'stress test' rules, enabling more borrowing capacity, and amending rules for easier remortgaging.
The FCA's 5-year strategy, published in 2025, underpins these efforts, emphasizing deepening trust, rebalancing risk, and the Consumer Duty for retail customers.
Targeted action for vulnerable borrowers
This report signals the FCA's focused approach on a niche but high-risk segment of the mortgage market.
While second charge mortgages constitute less than 4 percent of total sales, the identified shortcomings directly impact vulnerable consumers.
The directive underscores the regulator's commitment to proactive intervention where consumer harm is most acute.