TR16/4: Embedding the Mortgage Market Review: Responsible Lending Review

This report summarises the key findings of our market-wide thematic review of how firms are applying the responsible lending rules introduced in April 2014 following the Mortgage Market Review (MMR).

Why are we publishing this report?

This report summarises the key findings of our market-wide thematic review of how firms are applying the responsible lending rules introduced in April 2014 following the MMR.

The responsible lending rules set out to prevent a return to poor lending practices seen during the run up to the financial crisis, by putting affordability at the heart of the lending decision process. Our review assessed how our responsible lending rules had affected firms, consumer outcomes and competition in the marketplace.

The review found that:

• firms have recognised and positively engaged with the aim of our responsible lending rules
• there was no evidence of previous poor practices like self-certification of income or interest-only lending without a credible repayment strategy
• where lending is affordable, we did not see evidence that the rules had prevented firms lending responsibly across particular groups, for example older borrowers and the self-employed. Potential issues relating to lending to older borrowers will be included in our wider strategy work on the ageing population following our recent discussion paper
• improvements can be made to some aspects of firms’ affordability assessment process, monitoring and record keeping
• most lenders are using the flexibility afforded by our rules when dealing with their own existing mortgage customers. However, some firms could be more proactive and consistent when making use of exceptions.
• market data has shown that the responsible lending rules do not appear to have had a material impact on lending volumes. However, it is anticipated that the rules will have a greater impact as interest rates rise and affordability is stretched.

Who should read this?

You should read this thematic report if you are a lender or other home finance provider.

It may also be of interest if you:

• are a home finance administrator
• are a firm that advises on or arranges mortgages or other home finance
• have a mortgage or are planning to take one out
• are a body that represents consumers

What are the next steps?

Further to undertaking this review and reporting our findings we will:

• continue to engage with the industry to address the issues identified
• provide individual feedback to firms visited as part of our assessment, setting out any actions required
• where appropriate follow up as part of our ongoing supervision of these firms

Conclusions from this review have also informed the scope of our planned mortgages market study, described more fully in the Feedback Statement of the mortgages call for inputs.

More information

• Call for Inputs: Competition in the mortgage sector
• Modification by consent for a hybrid lifetime mortgage