The Financial Conduct Authority launched a big review into the British banking sector to make sure lenders gave millions of homeowners a mortgage at a competitive rate. It is also looking at whether the sector is sufficiently regulated.
This is a huge deal because there are seven million Britons with a mortgage at the moment and the stock is worth £1.3 trillion.
If the FCA finds any evidence of wrongdoing by the lenders, which could result in millions of people not being able to pay their mortgage, it could lead to a massive rupture in the housing market.
One of the FCA’s chiefs went on BBC radio this morning and highlighted how it’s particularly important to investigate the sector now because of Britain’s low interest rate environment.
“Our prime focus here … is about ensuring that when lending decisions are made that they are affordable but also that banks and other financial institutions are really properly taking account the fact that, if rates rise those loans still remain affordable for those people taking them out today,” said Christopher Woolard, director of strategy and competition at the FCA on “Wake Up To Money” this morning.
British homeowners have enjoyed record low interest rates since 2009. But Britain cannot keep record low rates forever. They will rise eventually.
Worryingly, surveys and data over the last year are all in line with showing that millions of Britons would struggle if rates moved up, even fractionally.
In December, the Money Advice Service warned that more than half of homeowners are not prepared for interest rate rises. Even more worryingly, 19% said they would really struggle to cover any rise in interest rates in their monthly repayments and 47% of people would find it hard to cover an increase of up to £150 extra a month.
“For millions of consumers a mortgage is one of the biggest, if not the biggest, financial transaction they will enter into in their lifetime,” said Woolard in an FCA statement.
“The mortgage sector also plays a vital role in the financial services industry and many areas of the economy. Competition can play a key role in ensuring that the sector works well, delivering consumer benefits through lower prices, better customer service, and more product choice.”
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