Mortgage Experts Call on Lenders Not to ‘Abuse Their Back Book’ of Borrowers

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Mortgage experts have called on large mortgage lenders to avoid ‘exploiting’ existing borrowers in search of higher profits. It comes after the new Financial Conduct Authority (FCA) chief executive said that one of the major issues facing the new regulator is that lenders are hiking rates for existing borrowers in order to generate higher income.

Martin Wheatley says the new City regulator is worried about lenders ‘abusing their back book’ of borrowers by increasing mortgage rates. Keep reading to earn more about the FCA’s concerns.

Low interest rates mean lenders are chasing profits elsewhere

Over recent years, the profits of many large mortgage lenders have been hit hard by the low interest rate environment. Many millions of borrowers are on tracker rates and Standard Variable Rate deals that are linked directly or indirectly to the Bank of England Base rate which fell to 0.5 per cent in March 2009.

Now, Money Marketing has reported that the FCA’s retail conduct risk outlook has highlighted concerns that firms are exploiting their existing customers due to limited new business.

Speaking at a recent briefing on the FCA, Mr Wheatley went further, saying: “We are particularly worried in the mortgage space that the low interest rate environment makes it a very difficult market to be profitable in.

“One of our concerns is ‘abuse of the back book’ if I can call it that, so where you have got locked or trapped customers, that fees are being raised in inappropriate ways. Where firms’ business models are under pressure, and frankly lots of business models are under pressure for all sorts of reasons, there is a risk people go chasing profitability through pushing unsuitable products.”

There have been signs over the last year or so that many high value mortgage borrowers are being ‘exploited’ by their lender. Several of the UK’s major lenders including Halifax, the Co-Operative Bank, NatWest and Santander have increased their Standard Variable Rate in recent months, pushing up monthly repayments for millions of borrowers.

What do the mortgage experts say?

“The new FCA chief has every reason to be concerned,” said Islay Robinson, CEO of London mortgage broker Enness Private Clients. “Lenders’ profit margins on new business are small as they are engaged in a competitive market for new business. Consequently, they are looking for ways to drive up their profits through their existing mortgage book.”

The warning comes after Bank of Ireland recently wrote to 13,500 buy-to-let and residential customers on tracker mortgages to warn them of plans to significantly increase their rates. High net worth mortgage borrowers will see the tracker differential on their loans more than double by the end of 2013.

Money Marketing reports that ‘Treasury select committee chair Andrew Tyrie has written to Wheatley raising concerns about the increase and questioning whether it amounts to misselling.’

Mr Robinson, the large mortgage specialist, added: “If interest rates continue to stay low then I expect to see lenders using ever increasingly underhand tactics to squeeze the most out of their existing borrowers.

“That’s why I would urge anyone with a high value mortgage on a SVR or tracker deal to seek advice. There may be alternatives that provide more certainty as to what you will pay in the medium term,” he added.



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