FCA review: Are second charge mortgage practices up to standard?

Today, the FCA published its review of the second charge mortgage market, and it's fair to say they've found a few things that need improving. The review looked at advice, fees and charges, and affordability assessments. What they found raises concerns about customer outcomes, especially as second charge mortgages are often taken out by customers already with high levels of debt and with lower financial resilience. 

From our perspective, these messages from the FCA are not new. The regulator has been consistently clear about its expectations in this area, and firms that are missing the mark are unlikely to receive a free pass. The key issues highlighted in the review are set out below. We would expect senior managers and boards to use this list for discussion at their next committee meeting. This will help highlight any gaps that need closing, as well as areas where you are performing well. 

Advice standards need improving.The review identified several issues with the quality of advice. Some advisers were only focusing on whether customers were eligible for a loan, rather than whether they should take the loan, based on their circumstances. Debt consolidation was recommended without clear evidence of affordability or that it made sense for the customer. Alternative options weren't always properly explored or explained. And where advisors did mention other options, the signposting was often unclear. 

Affordability checks weren't always realistic. Concerns were also raised around how affordability was evaluated. Some lenders relied on assumptions about customer expenditure that didn't appear realistic for what their customers were likely to spend. Certain types of expenditure weren't properly considered either, meaning affordability assessment weren't as robust as they need to be.  

Customer outcomes could be better.The FCA noted opportunities for firms to strengthen their focus on outcomes. Better information sharing between intermediaries and lenders could support more consistent decision making. Outcome testing should be broadened to consider the customer journey as a whole, not just on customer satisfaction when funds were released. 

Record keeping needs work. Poor or incomplete records made it hard for the FCA to understand how and why lending decision were made, something that's common theme in other supervisory work.  

Fees were noticeably higher. Intermediary fees in the second charge market tended to be much higher than those seen on first charge mortgages, which raises questions about fair value.  

How this fits into the bigger picture 

These findings sit alongside the broader direction of travel in the mortgage market. The mortgage rule review has the potential to open the market and enable lenders to serve groups who’ve traditionally struggled to access mortgage products. But the FCA is clear, access shouldn't come at the expense of responsible lending. Across all parts of the mortgage market, including second charge, firms need to be able to show that their affordability models, stress testing and suitability assessments genuinely support good outcomes. The issues raised in the second charge review are a reminder that the basics still matter, even as the market evolves. 

What happens next? 

The FCA expects second charge firms and their Boards to look at these findings and take action where needed. They’re also speaking directly with the firms involved about the changes they expect to see. 

The message is simple: wherever you operate in the mortgage space, strong advice, realistic affordability checks and clear customer focus are non-negotiable. 

How we can help 

Navigating FCA expectations can feel challenging, particularly as the mortgage market continues to evolve. We can offer support with advice file reviews to identify gaps and strengthen suitability processes, affordability assessments including expenditure assumptions, outcome testing to ensuring firms can evidence good customer outcomes across the end‑to‑end journey, and policy and process enhancements. 

If you’d like to discuss the findings or explore how we can support your firm, get in touch at contact@avyse.co.uk.