Lenders warned to explain mortgage interest rate floors
3 Dec 08
FSA says tracker mortage lenders at risk of breaching regulations
Borrowers must be warned about tracker mortgages if they have an interest rate floor, the Financial Services Authority (FSA) has stated.
The interest rate floor, which stops banks and lenders from passing on interest rate reductions when the Bank of England base rate drops below a certain amount, must be something that borrowers are told about when they take out tracker mortgages, says the FSA. Otherwise, lenders risk breaching the regulatory rules.
The FSA’s retail markets manager Jon Pain was speaking at the Council of Mortgage Lenders’ annual conference yesterday. He said that while interest rate floors were legitimate, they did need to be explained clearly and unambiguously to borrowers before they took the mortgage out.
Mr Pain also emphasised that customers who fall behind on mortgage payments should be treated fairly, and that the FSA had lessons to learn from the economic events of recent months.