For decades the profile of mortgage lending remained largely unchanged, but it has shifted rapidly in the past 10 years, with notable changes including the lengthening of mortgage terms from 25 to 35 years and a rise in the number of joint applications.
Household debt is also undergoing major shifts. The Bank of England has noted that half of all mortgaged households say they have found it easier or cheaper to obtain a personal loan than to raise extra funds through a remortgage, second charge or further advance.
Households’ reliance on unsecured credit raises uncomfortable questions as to whether tightening in the mortgage market — where there is underlying security with potential for capital growth and where, consequently, interest rates are far lower — has gone too far, encouraging households to take on debt in other forms.
This picture is further complicated by the growing number of households with expanding student debt —another unsecured form of credit that has no affordability assessment made whatsoever but poses an absolute and finite risk to the wider stability of the economy should repayments default.
In mid-December, the FCA published clarification of the UK’s application of the ‘open banking’ rules. These will force major retail banks and building societies to give authorised third-party providers access to customer data should the customer request it. Banks had previously issued warnings to customers never to share their login information.
The FCA came out guns blazing against this and issued the following statement of clarification: “Currently, businesses that provide AIS and PIS often ask you to share your bank security details with them, such as your login and passwords. Under existing data protection law these businesses must protect your data, and PSD2 [Second Payment Services Directive] will require these businesses to put further measures in place to keep your credentials safe and secure.
“Your banking terms and conditions should not prevent you from sharing your credentials with regulated AIS or PIS providers. Your bank cannot hold you responsible for unauthorised transactions just because you have shared your credentials with regulated AIS and PIS providers. If you notice a payment out of your account that you did not authorise, you should contact your bank as soon as possible. If you did not authorise it, you can claim a refund. You should contact your bank to claim a refund even if you think a PIS was used to make the payment.”
This is good news for customers who wish to take advantage of all that open banking offers. It raises tricky questions, however, for banks and intermediaries.
Our concerns remain unchanged and unaddressed
Online brokers that wish to access customer data through the use of APIs under PSD2 will find it much easier given this gold stamp from the regulator that customers are safe to transact and will be covered if anything goes wrong. Open banking will enable a technology platform to compare products from across the market, tailored to affordability, on a quickly, accurately and personally underwritten basis. Given that mortgage underwriters should also be able to access a customer’s details from all providers in the market securely and automatically through these APIs, affordability assessments could become far more accurate.
How far particular lenders will want to go in accessing all this data remains to be seen as they will be making judgements based on new sets of information with no history cycle to apply criteria. Also, there may be data where, once they know it, they cannot un-know it. This could mean some cases that previously might have flown through would now be rejected due to data such as gambling or other cashflow details.
Our concerns around this remain unchanged and unaddressed by the regulator. Whether a product recommendation based on quantitative data alone can be deemed personal advice, and therefore fully regulated, is still a grey area.
Online brokers can recommend a product based on any (and often limited) information provided by the customer, meaning the recommendation is not necessarily appropriate for a customer’s full circumstances, which may include future non-financial plans such as marriage, children or divorce. They continue to call this regulated advice, which we consider misleading.
We continue to hope the regulator will provide clarity on this distinction.
Robert Sinclair is chief executive of Ami