The Financial Conduct Authority (FCA) and the Government should consider alternative means of protecting borrowers who remain unable to switch mortgages as the time it will take lenders to adopt modified assessment processes could be disadvantage to them, it is suggested.

The Intermediary Mortgage Lenders Association (IMLA), responding to the FCA’s consultation paper on Responsible Lending, says the regulator should avoid raising borrowers’ expectations unrealistically and provide a clearer picture of the numbers and circumstances of borrowers who need additional support from lenders.

The Association, which represents 19 of the 20 largest UK mortgage lenders, responsible for £230 billion of annual lending, claimed the FCA’s current proposals do not adequately identify what the current cohort of so called trapped borrowers looks like and suggests that the extension of modified affordability criteria may only benefit a minority of those currently not able to switch to cheaper deals.

The IMLA believes many lenders will be unlikely to adopt modified assessment processes in response to the FCA’s proposal for extending these assessments to all borrowers seeking to re-mortgage. Approving, adjusting and testing new and revised systems is likely to take months to complete, it points out.

It explains that it will not be a matter of simply turning off or disapplying rules and any such delay could disadvantage the cohort of trapped borrowers which the amended rules intend to help. Instead, the proposals should only apply to those consumers who are eligible, particularly consumers have demonstrated their ability to repay their loans by keeping up with current payments and who do not want to borrow more.

The IMLA has urged that the FCA conducts more detailed research into the characteristics of the target group with a view to sharing this information with the industry before reaching its final conclusion

And it cautions the FCA against unrealistically raise borrowers’ expectations as a number of individuals will not be helped by the proposed amendments. The regulator and Government should consider alternative means to protect those who remain unable to switch.

The IMLA suggests that this should include scrutinising arrangements where books of loans are sold, assigned or transferred, and expanding the regulatory perimeter so that entities that acquire books of regulated loans must comply with a minimum regulatory framework designed to protect affected borrowers.

As part of its request for alternative solutions, the IMLA has called on the FCA and Government to revive legislation, originally set out in a 2009 Treasury Consultation paper that planned to expand the definition of the regulated activity of administering a regulated mortgage contract.

This was to be achieved by ensuring that companies which interact with mortgage holders were regulated by the then Financial Services Authority (FSA), including either the purchaser of a mortgage book or third-party administrators. At the time, the Government had identified a negative impact on borrowers regarding the onward sale of mortgage books, but the legislation was dropped in 2013.

The Statement of Practice on the Transfer of Mortgages, published by the Department for Environment in 1989, suggests historical precedence for this alternative support, with the Council of Mortgage Lenders adopting the statement into its Voluntary Mortgage Code until October 2004.

‘The regulator has put forward clear proposals to address the issue of mortgage prisoners in the UK, which is to be welcomed. However, there remains a great deal of confusion around the number of trapped borrowers these changes are likely to help,’ said Kate Davies, IMLA executive director.

‘Our industry must therefore be careful not to unrealistically raise the expectations of borrowers. Proposals such as modified affordability assessments will only support a small number of borrowers who find themselves unable to re-mortgage onto better deals,’ she pointed out.

‘The IMLA believes that the regulator and Government should consider alternative measures, including advanced legislation that was abandoned in 2013, to improve protections for those who remain unable to switch to a cheaper, more suitable mortgage deal,’ she concluded.