UK FCA findings on second charge mortgages: good and poor practices

The UK Financial Conduct Authority (FCA) has published findings from its good and poor practice review of second charge mortgages, assessing whether intermediaries and lenders are delivering good consumer outcomes in line with the consumer duty and relevant Mortgage Conduct of Business (MCOB) requirements. Second charge mortgages typically carry higher interest rates than first charge mortgages, and are commonly used to consolidate debt.

The FCA identified examples of good practice, including thorough collection and assessment of customer information, evidence of discussions around planned retirement age and innovative use of technology aimed at improving customer outcomes. However, it also highlighted several weaknesses that risk consumer harm including: (i) poor-quality advice on debt consolidation, sometimes without clear evidence that consolidation was appropriate or affordable; (ii) shortcomings in affordability assessments, which appeared to overlook key living expenses; (iii) weak information flows and oversight between intermediaries and lenders (where the FCA particularly noted that even when intermediaries are involved, lenders remain responsible for affordability assessments); (iv) inadequate record‑keeping; and (v) high intermediary fees in comparison to first charge mortgages that consumers found difficult to compare or assess for value.

The FCA emphasises that firms must ensure recommendations are genuinely suitable, affordability assessments are robust and evidence‑based, and fees represent fair value. It confirms that supervisory monitoring will continue; it will engage directly with firms requiring remedial action and that it may consider potential rulebook changes to further protect consumers consolidating debt.

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