Greater protection for borrowers
Updated on 25 November 2009
Consumers whose mortgages are sold on to third parties are set to receive greater protection under proposals that have been announced.
The Government outlined plans to bring the loans under the scope of City regulator the Financial Services Authority (FSA) to ensure borrowers are being treated fairly.
Mortgage lenders often package up their loans and sell them on to investors in a process known as securitisation, which enables them to raise money to fund new lending.
But concerns have been expressed that borrowers whose mortgages are included in the deals do not have the same protection as those whose loans are still on their original lender's books.
The Government also announced plans to bring second-charge mortgages, under which people borrow money secured against their home, and buy-to-let loans under the scope of the FSA.
Exchequer Secretary Sarah McCarthy-Fry said: "Since the onset of the global financial crisis, the Government has worked hard to ensure mortgage borrowers are treated fairly by their banks. Our focus has been to do all we can to make sure people can stay in their homes and to limit repossessions as much as possible.
A consultation on the proposals will run until February 15 next year. The Government plans to introduce the final measures through secondary legislation. The plans received a mixed response from industry bodies.
The Council of Mortgage Lenders said it supported extending the FSA's regulation to second-charge lending, and "broadly supported" the rationale for extending its scope to groups that bought mortgage portfolios, which would plug an existing regulatory gap.
But it said: "On buy-to-let, the CML is more agnostic. It is unclear whether the Treasury's main rationale for the proposed extension to scope relates to market risk or consumer protection."
Fiona Hoyle, head of consumer finance at the Finance & Leasing Association, said: "Second-charge lenders are not opposed to a move to FSA regulation, but they have yet to be persuaded that there is a compelling case for change. The current legislative standards already provide comprehensive consumer protection, which is reflected in the low level of repossessions."
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