Independent review and analysis

Regulatory challenges – are lenders truly ready?

As we come towards the end of another year, the focus, particularly in the mortgage industry, remains firmly on regulatory matters.

Most lenders are in the final stages of testing systems to ensure they comply with the Mortgage Credit Directive (MCD) which comes into force in March 2016. The industry still has a chance to express its views, as the Financial Conduct Authority (FCA) deadline for responses is 18th December. It is still seeking stakeholder views in three areas – Demand side behaviour, Supply side behaviour and Market features, including the regulatory regime.

Recent speeches by the FCA have particularly highlighted two areas of concern where they say more work is required:

1) In 2017 there is due to be a peak in the maturities of interest only mortgages, followed by another in 2018. This issue refuses to go away. We have first-hand experience of this; we know of a number of individuals who, with less than 12 months to go to maturity of interest only loans, have still had no contact at all from their lenders. So lenders’ contact strategies are either weak or in some cases, as we believe, are non-existent.

2) It is now estimated that over 1 million borrowers have never experienced an upward rise in interest rates. Since the implementation of the Mortgage Market Review in 2014, stress testing for such an eventuality has been in place, but that still leaves huge numbers of customers who completed mortgages between March 2009 (the last Bank of England rate change) and March 2014. As a result, they could be viewed as significant risk exposures for lenders.

In both scenarios it is critical that customer contact strategies are robust and are aimed at helping customers in the areas highlighted by the FCA. To communicate “early and often” when a challenge arises will bring confidence to the customer that a solution is possible. And that will satisfy the regulator too.

There is little chance to pause for breath with so much on the horizon, but the mortgage industry will continue to have major challenges over what’s left of 2015 and well into the New Year.

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