Financial Conduct Authority
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Mortgage Effectiveness Review: focusing on higher risk areas

The Financial Services Authority (FSA) announced today that the second stage of its review of the effectiveness of its mortgage regime will focus on areas where the risk of consumer detriment may be higher, such as sub-prime and lifetime mortgages. 

It will also look at 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.

Dan Waters, FSA Director of Retail Policy, said:

"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."

The first stage of the review last year mainly concentrated on disclosure and advice and selling practices in the prime mortgage market, where the FSA found that things were moving in the right direction, with consumers actively shopping around and with Key Facts documents helping them to understand the risks and benefits of the mortgages they take out.

Stage 2 of the review will include consumer research to find out more about consumers’ experience in the sectors of the market being covered.  This work will be supported by analysis of relevant market data and will take account of other FSA thematic work.

The consumer and other research will be designed and research agencies commissioned shortly, and the majority of the work will be completed by the end of the year.  The FSA will then analyse the findings and discuss them with stakeholders to get their input, before publishing the final report on Stage 2 in Q1 2008.  These findings will 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.


1.      The outcome of Stage 1 of the Review is described in FSA Pres s Notice 96/2006

2.      The Mortgage Review is one of the FSA's post-implementation reviews of policy interventions in retail markets, which form part of its work on better regulation. The purpose is to evaluate the effectiveness of the Mortgages: Conduct of Business (MCOB) rules against the intended consumer outcomes:  

Outcome 1:  Consumers shop around for mortgages;

Outcome 2:  Consumers understand whether they are being given advice or information by firms;

Outcome 3:  Consumers better understand the risks and features of the mortgages they take out, including affordability risks;

Outcome 4:  Consumers take out suitable and good value mortgages;

Outcome 5:  Consumers are treated fairly over the life of the mortgage, including when they go into arrears.

3.      Stage 1 focused on the first three outcomes and partially on Outcome 4. Stage Two will be looking at all five outcomes with a focus on areas with a higher risk of consumer detriment. 

4.      In parallel with the Mortgage Review, the FSA is also reviewing the effectiveness of its General Insurance regulatory regime.  More information about progress on this can be found in FSA Pres s Notice 27/2007. 

5.      The FSA took on responsibility for mortgage regulation on 31 October 2004 and for general insurance regulation on 14 January 2005.

6.      The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.

7.      The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.


Press:          Robin Gordon-Walker             020 7066 3232

Outside office hours            07795 351 956

Public:         FSA Consumer Helpline   0845 606 1234 (call rates may vary)




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