For much of 2020 the focus for lending regulators has been the coronavirus pandemic and assisting borrowers through the crisis. As we move into the new year that focus is set to continue however there is likely to be the chance for new developments that have been put on hold thanks to the restrictions.
The Financial Conduct Authority (FCA) have indicated a number of priority areas they’ll be focusing on in 2021 including the later life lending market, whilst initiatives surrounding green mortgages and products for first-time buyers are also likely to get the go-ahead. So, what should you be looking out for in 2021?
7 things to look out for in 2021
Borrowers will still require a substantial amount of support from lenders in 2021 with many still feeling a financial strain as a direct result of the pandemic. Regulators are likely to be keeping a close eye on forbearance policies and lenders should ensure they are on hand to offer support to vulnerable customers.
Appropriate customer outcomes testing frameworks will be essential for lenders in order for them to use the results to inform future policies in relation to arrangements for payment deferrals.
There is a growing demand for green mortgages and products and whilst there are already some on the UK market, we can expect more to arrive throughout 2021. Customers are increasingly sustainability-focused and lenders will need to demonstrate that they match their values.
In terms of regulation, the challenge so far has been proving the connection between mortgages against energy-efficient properties and a lower probability of default. In order for mortgage intermediaries and advisors to recommend these products more guidance and changes to the regulatory framework are likely needed.
Breathing Space Regulations come into force on 4th May 2021 and should be a major lifeline for those suffering from serious and problem levels of debt. The regulations will offer the first part of a debt respite scheme which will encourage people to seek professional debt advice.
The regulations will offer eligible customers the chance to access a 60-day period where interest, fees and charges are frozen and any enforcement action is paused; during which time they should seek advice on finding the right assistance for them. Customers who are receiving treatment as part of a mental health crisis will also be given an alternative route to access the protections of a moratorium.
The detail of the regulations was only published in November 2020 meaning many leading lenders are working on their implementation programmes for the regulation now.
The FCA have been relatively cautious when it comes to responding to calls for action in regards to mortgage prisoners.
There are likely to be a range of measures that support mortgage prisoners in 2021 however the financial regulator have said they will first need to be confident that steps such as a price cap on all standard variable rates is the most proportionate and effective response.
The Later Life Lending Market
Increases in later life lending mean the market is facing tougher scrutiny from regulators, including in the intermediary market.
The FCA are considering how intermediaries explain the fees and charges payable to the customer and the impact the pandemic has had on the quality of advice given, including how the fee levels are set.
The later life market is high on the FCA’s priority list for 2021 and in a letter sent to lifetime mortgage providers the regulator explained that areas under review would include product design and governance, introducer oversight and inappropriate sales.
The Bank of England announced in December that they would be reviewing the stress testing assumptions used to conduct mortgage affordability assessments. The conclusions of the review are expected in early 2021 and lenders and borrowers should expect a potential recalibration of the stress rate, moving it downwards, in response to the continued low interest rates.
As the cessation of LIBOR hits at the end of 2021, lenders will be continuing to focus on the transition and the legal framework they will need to have in place. Lenders will need to determine an alternative interest rate and fine-tune their communications strategy. Lenders are likely to begin communications to borrowers in early 2021.