Article originally published in The Intermediary June 2025 – page 12
May saw the Financial Conduct Authority (FCA) publish its Mortgage Rule Review (MRR) consultation paper, which aims to give consumers “more choice” in how they deal with their mortgage.
A central focus is making the process of switching lender at remortgage easier, faster and with a lower threshold for underwriting and the consequent paperwork it entails. At the end of a fixed term, many borrowers now use firms’ internal product transfer or ‘rate switch’ product. According to the regulator, out of 1.6 million who remortgaged in 2024, some 83 % stayed with their existing lender and 17 % remortgaged to a different provider.
The paper notes: “There are several barriers or transaction costs, both in time and money, that make external remortgaging less attractive, even if cheaper options are available. Customers may make a conscious choice to stay with their current lender because of these. These barriers can include conveyancing, valuations, engaging with a mortgage adviser and affordability assessments. By contrast, these don’t apply when completing an internal product transfer, and an affordability assessment is only required where the change is material to affordability.”
This recognises an unintended consequence of the existing regulatory regime. Essentially, consumers are disincentivised from shopping around and may end up paying more than is necessary for their mortgage.
The proposed amendments have a positive logic behind them, though we wait to see the final detail before assessing how they work in practice.
The FCA is definitely on the same page as much of the industry when it comes to the way that data use and digitalisation is changing what is possible for the customer journey.
Automated implications
The paper acknowledges that there is “significant momentum to digitise the home‑buying process, ”including speeding up conveyancing and HM Land Registry processes. Alongside existing tools such as automated valuations, credit file and HMRC checks, and the potential efficiency and innovation that can be delivered through Open Banking, the regulator wants to explore “options to streamline affordability testing requirements where the customer is remortgaging to a cheaper deal on similar terms.”
This has implications for affordability, but for lenders there is also property risk that has to be considered. Where a lender engages a customer in a straightforward product transfer, its understanding of the capital value, title and property condition – within whatever bounds deemed necessary at the point of origination – is as complete as it can be.
In the event that a borrower transfers via a similar product switch, on the same or similar terms, the new lender will be relying – at least partly – on the existing one’s underwriting. The affordability assessment, under the FCA proposals, will be based on payment history – the more robust, the lower the implied risk, is the theory. Where payments are lower following a switch, logic should dictate that the borrower can pay.
Relying on another lender’s assessment is separate from this.
Just as a borrower’s financial circumstances may have changed since their last assessment, so may have the property’s condition and value. Flood risk is dynamic, with new areas becoming exposed each year. Title assessment, including rights of way and boundaries, as well as land search results, can be cursory all the way through to comprehensive.
Permitted development rights
Permitted development rights (PDR) allow for material changes to a property’s construction, without the need for a change to be recorded. Trees grow, bamboo, Japanese knotweed and other organic threats to a property’s structural resilience change quickly.
Decision-making support
Lenders will need new sources of risk data to support their lending decisions. As the consultation paper highlights, this data is increasingly available in a format that becomes useable and meaningful at both an individual property level and for a mortgage book. But this is only one side of the coin when it comes to accessing true value from these sources. Lenders must have systems and technology capable of integrating with new data streams and pulling a sufficient number of elements out of a far wider data pool.
Data is only as good as the tools to make use of it – and the reality is that much of the mortgage industry’s systems are not set up for this new world yet. A wholesale system replacement across the entire market is a daunting prospect, yet if lenders are to facilitate the proposed changes, newer systems must be put in place to protect lenders’ risk exposure.
