Written evidence submitted by Which?
Which? is an independent consumer organisation
with around 700,000 members and is the largest consumer organisation
in Europe. Which? is independent of Government and industry and
is funded through the sales of Which? consumer magazines and books.
We welcome this opportunity to comment on mortgage arrears and
access to finance.
We shared the Committee's serious concern regarding
mortgage arrears fees and supported the recommendations for lenders
to provide an itemised breakdown of the additional costs their
arrears charges are supposed to cover and for the FSA and OFT
to review all mortgage arrears charges made by mortgage providers
to determine whether they were reasonable.
We support the FSA's proposed changes to the
rules to prohibit firms from continuing to levy monthly charges
where the consumer has made an arrangement to repay the outstanding
arrears. We also welcome the FSA's intention to conduct a review
of charging and pricing structures.
In this context it is extremely disappointing
that several mortgage providers have recently increased the level
of their arrears charges. Abbey has increased its monthly arrears
charge from £35 to £40. Capstone mortgages (a sub-prime
lender including "Preferred mortgages" and "Southern
Pacific Mortgages Ltd") has recently increased its monthly
"arrears management fee" from £60 to £85.
Bradford and Bingley has increased its monthly arrears charge
from £25 to £30, though it has reduced its charge for
an unpaid direct debit from £35 to £8.
It is vital that the FSA completes its review
of charging and pricing structures at the earliest opportunity.
Any consumers who have been charged more than the reasonable administrative
costs incurred should be provided with automatic refunds.
Which? continue to be concerned that the FSA's
regulatory approach does not provide a strong enough incentive
for lenders to treat their customers fairly or facilitate the
appropriate sharing of information between the regulator and the
judges which will be hearing repossession cases.
We welcomed the action taken against GMAC by
the FSA, which resulted in a fine of £2.8 million and redress
of £7.7 million to 46,000 customers. The latest information
released by the FSA indicates that they are taking action against
six firms for failing to treat customers in arrears fairly. However,
the FSA still refuses to publish the names of the lenders which
have been referred to enforcement. In response to our most recent
Freedom of Information request the FSA gave the following reasons
Section 348 of FSMA restricts the FSA from
disclosing "confidential information" it has received
in carrying out its functions except in certain limited circumstances
(none of which apply here). Confidential information for these
purposes is defined as information which relates to the business
or other affairs of any person and which was obtained by the FSA
for the purposes of or in the discharge of its functions under
FSMA and which is not in the public domain. In particular, the
disclosure of the name of the firms, when taken with the statements
already in the public domain (see below) about potential breaches
of the FSA's rules, would reveal information that the FSA has
received from the firms in the course of the Thematic Review into
mortgage arrears and repossessions handling. This work was undertaken
for the purpose of carrying out our supervision of the firms in
the mortgage sector, so information gathered pursuant to that
work falls within section 348 of FSMA.
Section 31 (Law enforcement): ... the information
requested, if disclosed, would, or would be likely to, prejudice
the exercise by the FSA of its functions for the purposes of ascertaining
whether circumstances which would justify regulatory action in
pursuance of any enactment exist or may arise ... There is a strong
public interest in the FSA being able to exercise its functions
under FSMA in the most effective way possible and for the protection
of consumers. Disclosure of the information requested, would,
or would be likely to, undermine the willingness of firms to participate
with the FSA in a future or similar review of the mortgage market.
In turn, this would harm the FSA's ability to obtain this type
of information voluntarily, so helping us to promote good practice
and address the areas and firms where serious and sustained failings
had been identified.
Section 33 (Commercial Interests): The commercial
interests of the firms who fall within the scope of the information
request would, or would be likely to, be harmed by disclosing
the information requested. These form part of the FSA's review
of the mortgage sector and our ongoing investigation of particular
firms concerning potential breaches of the FSA's rules in relation
to poor mortgage arrears and repossession handling practices and
excessive arrears charges.
Disclosure at the present time of the information
you have requested would be likely to lead to comment and speculation,
which would or would be likely to harm the firm's or firms' brands,
reputation and thereby their financial position. This would harm
the commercial interests of the firms and stakeholders in it,
including investors and employees.
In an environment where the Chief Executive
of the FSA has acknowledged that the regulator's Treating Customers
Fairly initiative has "not yet delivered substantial on-the-ground
benefits to consumers" it is essential that the FSA uses
every possible mechanism available to secure improvement for consumers.
Consumers should have a right to know if their
lender is currently being investigated by the FSA. Similarly,
judges hearing repossession cases should also be informed about
the concerns the FSA has about the conduct of individual lenders.
We believe the FSA should be asked how many homes those lenders
which it is currently taking enforcement action against have repossessed
in the past year.
Practices will only improve when firms which
treat their customers badly suffer damage to their reputation
and bottom line. The lack of information also leads to a lack
of accountability. It is impossible for outside observers to determine
whether the action the FSA has required firms to take to improve
their practices has been effective.
Which? believes that the FSA should immediately
publish its assessments of which lenders have been treating customers
unfairly and have been referred to enforcement. It should be prepared
to levy high fines on those which consistently flout the rules.
The revenue from these fines should be used to help borrowers'
access independent debt advice rather than be returned to the
industry in the form of lower regulatory fees.
We support the decision to convert the MCOB
forbearance guidance into rules. However, we also believe that
more needs to be done to ensure the fair treatment of customers
who are experiencing financial difficulties but have not yet fallen
into arrears. Our Money Advice helpline is still receiving phone
calls from customers who are trying to engage with their lenders
as soon as they are experiencing financial difficulties and are
not receiving the type or level of assistance that lenders are
claiming to provide to consumers.
The term "payment difficulties" is
not defined in the regulation. It is important that lenders take
a flexible and proactive approach to the treatment of consumers
who are not yet in arrears but have contacted the lender with
early notice of their financial difficulties. The advice given
to the consumer below by Northern Rock to cancel their direct
debit is irresponsible and risks damaging a consumer's credit
rating and restricting their ability to remortgage. We believe
that the regulator should make it clear that the term "payment
difficulties" and the associated rules should apply even
if a consumer has not yet missed a payment.
Case Study 1
A Member called because due to reduction in
income they approached Northern Rock to arrange to switch from
repayment to interest only. Northern Rock asked them to fill in
an income and expenditure form for them to consider the request.
It has now come back and said they don't fit the criteria. The
member called to find out why and was told that they just don't
and the only advice Northern Rock could offer is for them to cancel
their direct debit. The member isn't currently in arrears but
will not be able to pay February's payment on a repayment basis.
Case Study 2
A Member has been made redundant and his wife
doesn't work. His mortgage is with Northern Rock and is held within
the "bad bank" part (Northern Rock Asset Management).
He's asked if it will consider switching him to interest-only
but it won't negotiate at all.
Consumers have seen the low official interest
rates have been partly offset by a substantial increase in mortgage
spreads. Whilst, there has been a small decline in recent months,
the chart below shows the significant rise in margins on tracker
and discount mortgages since the start of the credit crunch. Which?
continues to believe that these increasing spreads are a function
of reduced competition in the market.
SPREADVARIABLE MORTGAGE RATES OVER
BANK OF ENGLAND BASE RATES
In addition to the increasing spreads on individual
products, the industry as a whole is increasing its margins as
consumers leave favourable short-term deals agreed prior to the
start of the credit crunch and move onto Standard Variable Rates.
For example, at the 2009 RBS annual results, Brian Hartzer, responsible
for UK retail, said "... we've certainly have seen a shift
to SVR which is helping our margin and will help our revenue growth
in the year ahead as well, because the margins are healthier on
The Bank of England recently estimated that
if spreads remain at their elevated levels then a Bank of England
base rate of just 3% would leave the proportion of income accounted
for by interest payments back where it was at the start of the
credit crunch. To put these figures into context an amount equal
to around 2.6% of income would be around £25 billion each
INCOME GEARING UNDER DIFFERENT INTEREST RATES
|Spreads||Bank rate (%)|
| Source: Bank of England, Financial Stability Report, December 2009 page 26
Standard Variable Rates
Several lenders have begun to increase the Standard Variable
Rates for existing borrowers. The highest of these increases has
been undertaken by Skipton Building society, which increased its
SVR from 3.5% to 4.95% with effect from 1 March 2010. This could
increase the average cost of a £150,000 mortgage by over
£1,450 a year. Skipton had previously given its borrowers
a contractual commitment that the SVR would be no more than 3%
above base rate. They are now relying on a term allowing them
to remove the SVR ceiling under "exceptional circumstances".
These changes illustrate the complete lack of contractual protection
for many consumers on their lender's Standard Variable Rates.
This could pose particular problems for customers of Northern
Rock when it is returned to the private sector. Many customers
will be unable to move elsewhere due to low levels of equity or
previous repayment difficulty.
INCREASES IN STANDARD VARIABLE RATES
||New SVR||Date changed
||5.99%||23 December 2009
|Amber Home Loans||+1.45%
||4.95%||1 March 2010|
|Hanley Economic Building Society||+0.45%
||5.19%||1 March 2010|
||5 January 2010|
|Norwich & Peterborough||+0.50%
||5.35%||2 February 2010
||1 March 2010|
|UCB Home Loans||+0.30% to +0.50%
||5.09% to 5.49%||1 February 2010
We continue to be concerned that some first time buyers may
take out tracker rates at very high margins above base rates and
be unable to afford the repayments if interest rates were to rise
significantly. For example, Halifax continue to promote a tracker
mortgage using the phrase "If you want to be able to take
advantage of lower interest rates if they go down, a tracker mortgage
could be what you need. But remember, interest rates can also
go up." It
is clear to us that the base rate is extremely unlikely to be
cut further, but no one can predict when or how fast interest
rates may return to their long-run average. Lenders and intermediaries
need to be required to look at repayments when the rate goes back
to its longer-term average and consumers need to be told how much
their repayments could increase.
Skipton, SVR, Questions and Answers, http://www.skipton.co.uk/mortgages/svr/questionsAndAnswers.aspx Back