Mortgages (Hansard, 27 January 2000)

§ Miss Melanie Johnson

Yes. The Treasury will set CAT standards for two types of mortgage: one charging variable interest rates, and one charging fixed or capped rates. Like the CAT standards for individual savings accounts, CAT standards for mortgages will define products with reasonable charges, easy access and decent terms and which can readily be understood.

The standards will be voluntary and non-CAT standard mortgages may be appropriate for many borrowers. But because they will be simple, clear and fair, CAT standard mortgages will help customers to make better informed and more confident choices about mortgage loans. Subject to consultation, FSA's disclosure regime will help prospective borrowers understand how particular mortgage offers measure up to the CAT standards.

The basic features of CAT standard mortgages are set out.

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Variable rate	Fixed or capped rate
Access—No restriction to existing customers. Mortgages available on the normal terms on which the lender grants loans, including loans for the lender's normal range of residential properties, and the lender's standard criteria for creditworthiness. Borrowers must be able to continue a CAT standard mortgage when moving house provided the existing lender is willing to lend on the new property. Regular payments available on any day of the month of the borrower's choosing. Early repayments permitted at any time.
Terms—All mortgage documents, including advertising and marketing literature, and explanations of charges, to be put in language which is fair, clear and not misleading. No tying in, i.e. no obligation for borrowers to buy any other product with the mortgage. Any linked special offers to be priced item by item, with discounts expressed explicitly where they apply. If the lender can no longer continue with CAT standard terms in an existing mortgage, borrower's must have at least six months' notice of the change. Borrowers in arrears equivalent to up to three months' repayments pay standard interest charges only on the outstanding debt (including accrued interest). After that period the lender may decide that CAT standard terms no longer apply.

A more full description of the CAT standards, subject to further consultation with the industry to firm up the technical specification, is being made available in the Library.

§ Miss Melanie Johnson

The Government are determined that lenders should not take advantage of mortgage borrowers at a time when they are often vulnerable because their main priority is home purchase. In a modern competitive economy they should expect to be able to finance residential property purchases with confidence that they will understand the nature of the product they are buying and the risks.

The Treasury carried out a consultation exercise in the second half of last year to examine the case for giving the Financial Services Authority (FSA) responsibility for regulating mortgage business. This was the recommendation of the Joint Committee on the Financial Services and Markets Bill (HC328/HL50) and of the Treasury Committee (HC 73). I am grateful to those in the mortgage industry, as well as borrowers and consumer representatives, for engaging in purposeful dialogue and contributing constructive feedback. The exercise showed that prospective borrowers' main need is better information about the many loans on offer in this competitive and sometimes confusing market.

I have therefore decided that a statutory instrument under the Financial Services and Markets Bill, now before this House, will give the FSA statutory responsibility for regulating nearly all residential mortgages. This will mean that all mortgage lenders will have to be authorised by FSA with specific permission to lend on mortgage. It will not be necessary for mortgage brokers to be authorised unless they also carry out investment business such as advising on endowment policies, where authorisation is already required.

This will make the mortgage market more transparent for borrowers. The new power will enable the FSA to regulate mortgage advertising and to require all mortgage lending activity to include specific disclosure of the main features of the loan. The FSA will consult on its policy approach and rules, including their regulatory impact, later this year, with a view to bringing the new regulatory regime for mortgages into effect next year. These rules will be designed to complement the voluntary Code operated by the Council of Mortgage Lenders. This has helped deliver welcome improvements, for instance in the competence and expertise of mortgage advisers.

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The introduction of mortgage regulation and CAT standards, which I am announcing separately today, will take place in parallel with several other measures designed to help home buyers. Recent announcements include the proposed revision to the regulations on annual percentage rates (APRs), which my right hon. Friend, the Secretary of State for Trade and Industry laid before the House on 26 November, the package of measures announced by my hon. Friend the Minister for Housing on 11 October about improving the house-buying process, and the proposal, announced by my right hon. Friend, the Secretary of State for Trade and Industry on 17 December, to prevent lenders making a compulsory link between mortgages and home insurance deals.

The approach to regulation of the mortgage market reflects the nature of mortgage loans. If information is clear mortgages are intrinsically easier to understand than, for instance, many retail investments, such as endowments. With the new safeguards, we expect there to be many fewer consumers who regret their choice and it will be much easier for mortgage borrowers who do then come to regret their choice to disengage and remortgage at reasonable cost. The FSA already regulates advice on investment products designed to repay mortgages, such as endowment policies.

These complementary measures will improve the quality and coverage of the information available to prospective mortgage borrowers and house buyers. They will deliver the essential protections borrowers need without burdening them with requirements which could unnecessarily slow down the sales process.

I am today making available in the Library a summary of the evidence about detriment in the mortgage market collected in the course of the recent consultation exercise.