TACKLING MORTGAGE CONCERNS
Statutory regulation of mortgage lending activities and new benchmark CAT standards for mortgages are central to a package of measures to protect borrowers from unfair or restrictive lending practices, Economic Secretary Melanie Johnson announced today.
Announcing these further steps to help borrowers get the right mortgage on the right terms, Miss Johnson said :
"We are reforming the system for selling mortgages, putting consumers in control to make sure they get a better, fairer deal.
"We are taking the right action to tackle the problems they've faced in the past. We are making sure consumers get clear, comprehensive and comparable information to drive up standards, cut costs, improve competition, and above all improve consumers' ability to make informed choices.
"Our consultation shows that what prospective borrowers really lack is clear, comparable and reliable information. That's what they want and that's what the package I'm announcing today will deliver.
"Customers know mortgages are not intrinsically difficult, but what they need is better information to ensure they are in a position to buy their mortgage and not have it sold to them.
"So, once and for all, we're tackling this confusion that can surround mortgages: the interest rates that can't be compared, the charges that aren't explained, and the hidden penalties that only emerge later. Or even worse, the redemption charges that only emerge when borrowers want to remortgage or move house. Under the proposals we announce today, all these will be a thing of the past.
"From now on, by law, the consumer will know what they need to know to make an informed and sensible decision about which mortgage they should choose: straightforward information and easy-to-understand terms consumers can compare.
"Lenders should not take advantage of mortgage borrowers, particularly when they are vulnerable to the pressures house-buying exerts and they are faced with a four or five thousand different mortgage deals to choose from. Borrowers have every right to expect to be able to buy their homes with the confidence that they will be treated reasonably and fairly by lenders.
"We are addressing the need for clear information and better consumer choice in two ways.
"First, we are giving the Financial Services Authority (FSA) responsibility for regulating key aspects of mortgage selling. The FSA will authorise lenders to carry out mortgage business, regulate mortgage advertising and require lenders to disclose all the main features of loans clearly and openly. The FSA will now begin preparations to bring these changes into effect next year.
"Second, we will set benchmark standards for variable and fixed rate or capped mortgages, which will come into force with almost immediate effect. These CAT standards will be voluntary and not all such mortgages will, or necessarily should, meet them. But they will tell borrowers what they can expect of them, so that they can make better informed, confident mortgage choices and avoid the products which have in some cases caused detriments in the past.
"These measures add to those already announced to benefit borrowers. We have given the FSA a statutory duty to improve public awareness and understanding of all financial products, and the FSA is developing information tables to help consumers to compare products.
"The DTI recently announced plans to standardise the calculation and disclosure of annual percentage rates (APRs), and to ban tying in the often high priced sale of other products, such as insurance, to attractive mortgages. And the DETR is developing a package of measures to speed up and simplify the house buying process.
"So our promise to home-buyers is this: in future you will get clear, comparable and comprehensive information. You will know how much you have to pay every month; you will know up front what you will pay to move your mortgage; and you will know how much it will cost to get out of your mortgage early.
"From now on, by law, what you see is what you get. Honesty, transparency, clarity and fairness in the terms of sale of mortgages is no longer simply an option: it is now a legal obligation."
The proposals follow extensive public consultation, which identified a range of problems facing mortgage borrowers, set out in a summary analysis of responses to the consultation also published today. Further details of the proposals are set out in accompanying press releases.
NOTES FOR EDITORS
1. The Treasury opened public debate on concerns about mortgages when launching the consultation document "Regulation of Mortgages: a discussion document by HM Treasury" in July 1999 (HM Treasury press release 122/99). This invited readers to provide evidence of the nature and extent of consumer damage in the present mortgage market as well as seeking input on whether and how FSA regulation could best protect consumers.
2. Some 200 written submissions were received. These were supplemented by meetings with lenders, consumer groups, trading standards bodies, MPs and others. A summary analysis of responses is published today (attached). This shows that the four main areas of actual or perceived detriment are :
i) poor or misleading information, lack of transparency;ii) product features, requirements, and lenders' systems;
iii) regulatory gaps; and
iv) treatment of arrears.
3. In October 1999, the Department of Environment, Transport and the Regions announced proposals to streamline the process of home buying and selling (DETR press release 940/99, available from the DETR website.
4. Also in October 1999, the Financial Services Authority launched a consultation on proposals for publishing comparative financial information for financial services (so-called 'league tables') (FSA press release 95/99, available from the FSA website.
5. In November 1999 DTI Secretary Stephen Byers announced that all lenders will have to use a standard method of calculating annual percentage rates (APRs) (DTI press release p/99/973, available on the DTI website.
6. In December 1999 Mr Byers announced legislation to break compulsory links between mortgages and home insurance deals (tying-in) (DTI press release p/99/1042, also available on the DTI website).
7. Media enquiries should be addressed to Charles Keseru at the Treasury Press Office on 0171 270 5188.