Now FSA turns focus on sub-prime

The Financial Services Authority launched the second stage of its review of the effectiveness of its mortgage regime this month, saying the review will focus on areas where “the risk of consumer detriment may be higher, such as sub-prime and lifetime mortgages”.

The review will examine whether consumers are taking out suitable and good value home loans, and whether customers are treated fairly over the life of their mortgage, including if they go into arrears.

The first stage of the review last year concentrated on disclosure and advice and selling practices in the prime mortgage market, where the FSA found few real problems with consumers actively shopping around, and key-facts illustrations helping them to understand the risks and benefits of the mortgages they took out.

The second stage of the review will include research to find out more about consumers’ experience in the sub-prime and lifetime mortgage markets.

The majority of the work is expected to be completed by the end of the year, following which the FSA will discuss the findings with stakeholders before publishing the final report on Stage 2 in Q1 2008.

The findings will also inform any next steps for developing the mortgage regime, which will also take into account the European Commission’s forthcoming White Paper on mortgage credit.

Dan Waters, FSA Director of Retail Policy, says: “This next stage of the mortgage effectiveness review will focus on more specialised sectors where we think there is greater risk of consumer detriment.

“We will also look at the treatment of customers in arrears. The findings of the review will help inform our thinking about how we might apply a more principles-based approach to our mortgage rules.”