Advice NI's Response to FCA Consultation on Interest Only Mortgages
Advice NI response to the Financial Conduct Authority guidance consultation on dealing fairly with interest-only mortgage customers who risk being unable to repay their loan.
Advice NI welcomes the opportunity to respond to the Financial Conduct Authority guidance consultation on dealing fairly with interest-only mortgage customers who risk being unable to repay their loan. Section 1 includes background information on Advice NI and our Debt Action NI service. Section 2 then highlights our response to the consultation questions most relevant to us.
Section 1: Background & Overview
Advice NI is a membership organisation which exists to provide leadership, representation and support for independent advice organisations to facilitate the delivery of high quality and sustainable advice services. Advice NI provides its members with the capacity and tools to ensure the delivery of effective advice services. This includes: advice and information management systems, funding and planning, quality assurance support, NVQs in advice and guidance, social policy co-ordination and ICT development. Membership of Advice NI is normally for organisations that provide significant advice and information services to the public. Advice NI has over 65 member organisations operating throughout Northern Ireland, providing information and advocacy services to approximately 100,000 people each year and dealing with over 269,000 enquiries on an extensive range of matters including: debt, social security, housing, consumers and employment issues. For further information, please visit www.adviceni.net.
Advice NI’s Debt Action NI Project is aimed at helping the most financially vulnerable in Northern Ireland and has provided free independent debt advice to nearly 10,500 clients dealing with over £182 million of debt for the period November 2009 to April 2013. Over the same period our service dealt with over £46 million of mortgage debt and £17 million of mortgage shortfall debt.
Section 2: Response to guidance consultation
3.2. We agree that all organisations providing residential mortgages should have a clearly defined and approved written statement on their policy and procedures in dealing with mortgage loans that may not be paid in full at the end of the term. We would also further this by stating these written statements and subsequent documents should not use unnecessary jargon but should be clear, concise and in plain English. These statements should be readily available and easily accessed through various media outlets including internet and email. Every employee of the firm dealing with this type of work, whether through helpline or face to face, should also be adequately trained and knowledgeable in these policies and procedures.
3.3. While we acknowledge firms are not obliged to offer solutions at the end of a term, we believe that all steps should be exhausted with the customer to come to an agreement to pay off the principal sum. This could include considering:
- A third party, such as a family member, to enter into an agreement to repay the debt
- A lifetime mortgage
- Offering another low interest product to repay the capital.
3.4. Advice NI believes that firms should demonstrate in writing the options that are applicable and why some options are not applicable. All options and considerations need to be discussed clearly and directly with the customer, with understanding checked and confirmed. Where this has not been done, then the firm would need to clearly demonstrate good reason for this.
3.5. All options should be considered after a rigorous affordability check which fully assesses the customer’s financial and personal circumstances. This will ensure that the chosen option will not push the customer into further hardship and stress. All available options should be listed and this list should not be exhaustive as best practices will continue to emerge in the sector. We would recommend that the following options are considered -
- Equity release schemes; switching to a lifetime mortgage
- Allowing a third party to enter into an agreement to pay off the outstanding principal sum
- Support the customer to sell the property allowing them to remain in the home until the sale is completed while continuing to pay a rent
- Lowering the interest on the mortgage to allow the customer to begin to repay the principal
- Restructuring the mortgage based on a re-evaluation of the current worth of the property. This may be reviewed after 5 years to consider whether the mortgage value should increase or not
- Offering a write-off for customers who have a small amount outstanding if they cannot extend payments
- Consider the potential of allowing larger charities who undertake legacy of properties to support the client
- Offer other appropriate provider products
- Considering moratoriums where there is future access to lump sums which can be used to repay the capital
- Not imposing financial penalties when early repayments are made
We would be concerned about the option to extend the mortgage term on an interest-only basis as this may compound the issue further for the customer.
3.7. We would like the FCA to define what is considered “enough time” for the customer to consider options given to them. We believe that customers should be allowed at least one month cooling off period to fully consider options. We also recommend that firms should provide information on free debt advice services if the customer wants to ask for another opinion. Advice NI also believes that basic universal criteria should be defined and accepted across all firms when providing options. This would ensure that Principle 6 relating to due regard and fairness would be adhered too.
Documented guidance framework
3.8. We agree with this statement and would also say that updated training should be held at least bi-annually on these policies. This will ensure that any updates on new considerations and options are highlighted. It will also ensure that new employees have the chance to engage with policies, procedures and guidance. This will provide a consistent approach across the firm. We would suggest that key appointed advisers are allocated to customers as this will also help build better customer relations, provide a better understanding of individual cases and ensure quality.
3.9. We believe that it is right to differentiate options and communications strategies for those customers in arrears or under forbearance arrangements. We would also highlight that vulnerable customers will require different strategies and techniques to fully understand the consequences and options available.
3.10. Advice NI agrees that all options provided are plausible and consideration has been given to both personal situation and financial circumstances of the customer. We believe that the Common Financial Statement should be used for assessing customer finances. This is a proven system and was agreed by the financial industry as good practice.
3.11. We would like to also add that firms should consider redress and immediate action to remedy bad practice that was highlighted during the monitoring process.
3.12., 3.13. and 3.14. We agree that affordability is paramount when considering entering a customer into an option. The Common Financial Statement process should be followed before any options are provided to the customer. This will provide a full picture of the customer’s current financial situation. All customers should be allowed a cooling off period of one month to fully consider all options. Firms should provide details of voluntary organisations that will offer help and assistance free of charge such as Advice NI’s, Debt Action NI service www.debtaction-ni.net .
If sale of the property is the only option remaining to the customer, the customer should be supported and given time to sell the property. The firm should also allow the customer to pay an affordable rent and remain in the property until a purchaser is found. There would need to be a clear distinction between mortgage firms offering this option and the speculators who currently offer to purchase the property at a much reduced price and rent it back to the owner, taking advantage of their vulnerable situation. This will be in the best interests of the firm as a sale by the customer will usually attract a higher purchase price as opposed to a sale as part of the repossession process. Repossession should always be a last resort.
Under good practice we believe that firms should publish how regularly they review customers with interest only mortgages. We believe that any customer who is currently in arrears should be reviewed immediately. We would recommend that firms consider reviewing all customers who have 10 years or less left on their mortgage term. Robust strategies should be implemented to deal with vulnerable customers to ensure they fully understand any new potential options. We recommend all documentation should be written in plain English and condensed so the details of the agreement are very clear. Dedicated appointed advisers should be considered for vulnerable customers.
We do not believe that field agents should charge for their service. The field agent should only visit customers by invitation and not cold call. Where appropriate it may be better to meet customers in their local branch.
3.17. We believe that FCA needs to clearly state that firms must act quickly to redress any poor performance or mistakes identified during monitoring of the service so as not to affect customers. If a customer has been affected by poor practice then compensation should be considered for them. Quarterly reports should be produced and should be easily accessible for the FCA to review.
Generally, Advice NI believes that firms need to use a wide range of communication tools and strategies for vulnerable people particularly those with ,
- Illiteracy problems
- Hearing impairments
- Eyesight impairments
- Mental health issues
Each group will have their own special requirements for communication. For many they will need and prefer face-to-face communication. We believe that third parties should be allowed to accompany particularly vulnerable clients, including for example voluntary organisations, health care professionals or friends and/or family.
3.21. Advice NI believes firms should immediately contact anyone in arrears who has an interest only mortgage to discuss their options. All customers should have a review of their circumstances at least10 years before the end of the agreement and options should be discussed and initiated at this stage. Those who have less than this should be called in immediately for review.
A range of communication methods could be used to engage the customer especially if they are struggling financially as letters may be ignored. This could include text, email, telephone, face to face and letter. Using the customers preferred contact method and preferred time of contact will aid engagement. All correspondence should be simplified, using plain English with clear contact details.
Each firm should have trigger points for contact customers and they should be very clear to the customer that they will be in touch and explain the reason for the contact.
Firms should inform customers of all free impartial or independent advice services including the Money Advice Service and others such as Advice NI and the Debt Action NI service.
This list should be easily accessible and kept up to date. Perhaps this could be a role for the FCA to manage and update a list of advice providers on an annual basis.
Good practice in the sector should be shared and replicated across all other similar firms.
Advice NI recommend that communication strategies that are supported by follow-up telephone campaigns are monitored to ensure that the frequency of calls are reasonable and do not constitute harassment.
Contact information on this consultation response:
Fiona Magee (Deputy Chief Executive)
Sinéad Campbell (Money Advice Project Manager)
1 Rushfield Avenue
Tel: 028 9064 5919
Fax: 028 9049 2313