In its Retail Conduct Risk Outlook today, the regulator says as a result of six lenders dominating the mortgage market, some smaller lenders with higher funding costs are looking at other ways of competing for business.
One area the FSA says it has seen a number of innovative new products is in the higher loan-to-value sector of the market, with lenders looking at new ways of helping first-time buyers who do not have a 10% deposit or more.
It says some of the products include:
- New generation guarantor mortgages – unlike existing products, where parents’ income was used to guarantee the mortgage, new schemes can involve parents’ savings being used to offset the child’s mortgage, or a legal charge being taken over a percentage of the parents’ property, which is then used as the deposit.
- Mortgages where, to help borrowers to obtain a higher loan-to-value mortgage, part of the loan is a non-FSA regulated shared equity loan.
It says it has also seen some firms, operating in niche areas of the mortgage market, which have tried to launch unregulated ‘look alike’ products as alternatives to regulated sale-and-rent-back and equity release products.
Its report says: “Innovation can deliver benefits for consumers, but it can also result in increased levels of complexity, thereby creating potential detriment to consumers.
“Without appropriate controls in relation to the targeting and marketing of these products to consumers, there is a risk that innovative niche products will be sold to consumers for whom they are not suitable.
“We have published consumer alerts to warn consumers of the potential concerns and lack of regulatory protections associated with these products.
“While market conditions remain flat we expect to see more innovation in the mortgage market and we will continue monitoring developments to ensure that, where new products are more complex than a traditional mortgage, the products are clearly targeted and sold to consumers who understand the risks involved.”