FCA: Firms are increasingly using transitional arrangements

Lenders are increasingly using the transitional arrangements written into the MMR to stop borrowers becoming trapped, says the FCA.

The transitional arrangements have been a hot topic of late and lenders have come under fire for their reluctance to use them.

They allow lenders to waive affordability checks for borrowers who may be trapped under the new rules as long as the customer does not wish to borrow more money, there is no “material impact” on affordability and they have a good payment history.

They can be applied to existing borrowers and borrowers from other lenders.

While many of the bigger lenders have been criticised for not using the arrangements as they were designed – especially with borrowers transferring from other lenders – smaller players like Ipswich and Melton Mowbray building societies have actively targeted these customers.

But speaking at the Intermediary Mortgage Lenders Association’s Great Mortgage Debate in London last week, FCA mortgage and mutual sector manager Lynda Blackwell said the situation was improving.

She said: “Firms are increasingly using the transitional arrangements. We are seeing that.”

However, mortgage prisoners were dealt a blow recently after it emerged that lenders would have to apply affordability checks to all remortgage customers who came from rivals as part of the European Mortgage Credit Directive, therefore making part of the arrangements redundant.