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Analysis: When regulation creates mortgage ‘prisoners’

Too much red tape in the mortgage industry can actually leave consumers in a worse position, as some markets are starting to discover.

Now this might sound strange, but regulators are competitive like the rest of us. When the UK banking regulator makes a move, you can bet your bottom dollar that ASIC and APRA know all about it and are getting ideas.

Regulators from different jurisdictions are also collaborative; they talk to one another and discuss strategies for keeping tabs on the financial services community.

Right now, the latest crackdown in the Aussie mortgage market is on customer living expenses and incomes, as many of you will be aware. If you want the playbook of how mortgage regulation might look ahead of time, then it’s worth checking out what’s happening in the UK.

Mortgage Business has been keeping an eye on the British home lending landscape since 2014 and the synergies between our markets are plain to see.


Back in 2016, the UK regulator, the Financial Conduct Authority, implemented a set of rules known as the Mortgage Credit Directive (MCD), which was actually set by the European Union (EU). This meant that anyone getting a mortgage would be subject to strict affordability checks scrutinising their income and expenses. Sound familiar?

The problem is, this has prevented a large number of borrowers from seeking a better outcome.

Thousands of UK mortgage customers have found themselves locked into products as a result of these regulations. Even if they already have a mortgage and are now applying for a cheaper one, tougher conditions around expenses and income are creating a growing number of “mortgage prisoners” unable to refinance.

According to UK-based website MoneySavingExpert, the FCA has been accused of having no sense of urgency as it grapples with how to help around 30,000 mortgage prisoners who have been told they can’t afford to switch to a cheaper rate.

FCA boss Andrew Bailey was recently questioned by MPs on the Treasury Committee over what action the regulator was taking to assist customers trapped in expensive mortgage deals due to the Mortgage Credit Directive.


“An interim FCA report published last month warned that 30,000 long-standing mortgage holders, most of whom took out their deal before the 2008 financial crisis, are unable to switch to a cheaper mortgage despite being up to date with payments,” according to MoneySavingExpert.

“A further 120,000 are thought to be unable to get a cheaper deal than the one they’re currently on because they have a mortgage which has been sold to a firm which isn’t authorised to offer new mortgage deals.”

MoneySavingExpert has been fighting to help mortgage prisoners for several years now. The website’s founder, veteran finance journalist Martin Lewis, criticised the directive back in 2015 in his blog titled “I’m taking on the EU Mortgage Credit Directive — it’s going to create many mortgage prisoners”.

Apparently, the UK regulator has admitted that the situation is ridiculous and, together with the Treasury, has debated whether the rules have been enforced beyond necessity.

FCA chief Andrew Bailey pointed to Brexit, which he believes has to some extent disempowered the UK regulator from changing the EU rule.

There is such a thing as too much red tape and UK borrowers are feeling it. With more scrutiny of the Australian mortgage market than ever before, one has to consider whether our privileges as citizens and consumers are being taken away in an attempt to regulate the industry.

Analysis: When regulation creates mortgage ‘prisoners’

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