According to the FSA’s director of retail policy and themes, Dan Waters, the review “will help shape the future” of its mortgage conduct of business regime. It was designed to measure whether the FSA’s mortgage conduct of business rules are effectively delivering intended benefits for consumers.

This second instalment looks at the more specialised mortgage sectors: sub-prime and lifetime. Although these sectors are relatively small – comprising less than 10 per cent of the regulated mortgage market – the FSA has chosen them as a focus as they pose a greater risk to consumers.

It found that sub-prime and lifetime consumers consider its Key Facts Illustration (KFI) to be an important and useful document for helping them check details and clarify uncertainties, but not for product comparison and shopping around.

It also discovered that sub-prime and lifetime customers are heavily reliant on advice from their broker, and are mainly concerned with price. Sub-prime customers, in particular, are highly focused on initial payments.

The CML welcomed the FSA report, which is extremely topical in the current financial climate. Senior policy adviser, Kate Davies, says: “The first stage of the MCOB review looked at the mainstream mortgage market, and today’s findings relate to the much smaller niche markets of lifetime mortgages and sub-prime lending.

“It is perhaps unsurprising that borrowers in these markets seem to be using their key facts illustration more as an information check than as a tool for shopping around.”

Research from the CML and the FSA reveals that 1.4 million homeowners coming to the end of fixed-rate mortgage deals are likely to face higher repayment rates in 2008.

The CML has been working with Money Advice Trust and members of parliament to produce a leaflet entitled ‘Fixed-rate mortgages – some early advice’ for affected borrowers.

CML director general, Michael Coogan, says: “A large number of borrowers are likely to see their mortgage costs rise when their fixed-rate deals expire this year. We may be past the peak of the ‘payment shock’ this will produce, but market conditions remain uncertain and borrowing costs are continuing to rise.

“Borrowers need to plan ahead for higher monthly payments and look carefully at the options available to them.

“Anyone who thinks they might have a problem in paying their mortgage should talk to their lender as soon as possible. The earlier the borrower makes the lender aware of any potential payment problem, the wider the range of options for dealing with it.”

© Fair Investment Company Ltd