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FCA to target second charge and sub-prime sector

The Financial Conduct Authority has revealed plans to closely examine the second-charge and sub-prime mortgage market this year over concerns that some lenders are setting out to profit from borrowers who are unable to repay their loans.

In its business plan for 2019/20 the regulator set out its priorities for the year ahead, including ongoing work on implementation of the Mortage Market Study, published last month.

But as part of its work on high-cost credit, the watchdog says it will also look into “business models that drive unaffordable lending”.

The FCA says: “In recent years, we have introduced measures to help consumers in markets with a high incidence of poor value products, services or treatment of those in financial difficulty.

“We are concerned that the business models of some retail lending products, including some subprime credit and second charge mortgage products, are designed to benefit from consumers not repaying their debts.

“For example, firms may make profits from consumers who do not or cannot repay in full and on time.

“We will carry out work to identify these business models and the consequences for consumers and use our findings to identify what action we may need to take.”

The news follows figures from the Finance and Leasing Association earlier this month which showed a 24 per cent rise in the number of new second charge mortgages agreed in February compared to a year earlier, bringing the 12-month total to 24,249.

The value of these mortgages reached over £1bn for the second year running.

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