Mortgage providers: Act now for a compliant future

What happened?

The FCA reported that the number of borrowers struggling to keep up with bills and credit repayments increased by 3.1 million in May 2023 compared to the previous year. With many fixed-rate mortgage deals ending during 2023 and 2024, the regulator expects increasing numbers of mortgage customers to face repayment difficulties as they move onto higher rates.

At the same time, Consumer Duty has become a central focus of FCA supervision. The regulator has made clear that mortgage lenders, administrators and intermediaries must be able to demonstrate that they are delivering good outcomes, supporting customers in financial difficulty and providing fair value across the mortgage distribution chain.

Why does it matter?

Higher mortgage costs and wider cost-of-living pressures are increasing the likelihood of customer vulnerability and financial distress. This creates greater demand for customer support, repayment flexibility and complaints handling services.

Consumer Duty raises the evidential burden on firms. The FCA expects organisations not only to support customers effectively, but also to monitor, measure and evidence that good outcomes are being achieved. Firms unable to demonstrate this may face increased regulatory scrutiny, reviews or remediation requirements.

Who is affected?

Mortgage lenders, mortgage administrators, mortgage intermediaries and brokers.

Firms supporting customers experiencing financial difficulty, vulnerability or repayment challenges.

Senior managers responsible for Consumer Duty implementation, governance and regulatory compliance.

Customers whose mortgage payments are increasing as fixed-rate deals expire.

Key risks

• Failing to identify and support customers experiencing financial difficulty.
• Inability to evidence good customer outcomes under Consumer Duty.
• Poor fair value assessments or product governance arrangements.
• Rising complaints, customer dissatisfaction and reputational damage.
• Resource shortages affecting customer service and debt management functions.
• Increased FCA scrutiny, intervention or remediation activity.

Actions to take

• Review customer support processes for customers in financial difficulty.
• Conduct Consumer Duty gap analyses and remediation planning.
• Assess products and services against the fair value outcome.
• Strengthen outcome monitoring and management information.
• Ensure sufficient resources are available to manage increased customer demand.
• Review customer communications to support consumer understanding.
• Establish robust governance and evidential frameworks that demonstrate good customer outcomes.
• Assess whether current data and reporting provide sufficient insight into customer outcomes and risks.

Wider implications

The mortgage sector is entering a period of more assertive FCA supervision, with Consumer Duty becoming a key component of regulatory oversight. Firms will be expected to demonstrate a deeper understanding of customer outcomes and use data more effectively to identify risks and improve customer experiences.

The growing focus on financial difficulty, vulnerability, fair value and evidencing outcomes is likely to result in increased regulatory scrutiny across product design, customer support and governance arrangements. Firms that take action now will be better positioned to manage future compliance challenges and changing customer needs.

Recommendations

• Prioritise reviews of customer journeys involving financial difficulty and vulnerability.
• Enhance data collection and outcome monitoring capabilities.
• Validate that fair value assessments remain appropriate in changing market conditions.
• Improve governance and board oversight of Consumer Duty outcomes.
• Perform independent assurance reviews to identify gaps before they become regulatory issues.
• Consider technology-enabled compliance and monitoring solutions to improve oversight and efficiency.