The Financial Conduct Authority published findings from a supervisory review of second charge mortgage intermediaries and lenders covering advice quality, affordability assessments, and fees and charges. While it found examples of good practice, it identified shortcomings that could drive poor customer outcomes, particularly where loans are used to consolidate debt and customers may have characteristics of vulnerability. The review covered firms representing over 40% of the second charge advice market and around 50% of second charge lenders, and included an assessment of intermediaries’ Fair Value Assessments. Key issues included advice files that did not clearly evidence why debt consolidation was suitable or affordable, limited consideration and signposting of alternative options, and instances where additional debts appeared to be consolidated to help pass affordability tests without clear rationale. Affordability assessments sometimes relied on unrealistic expenditure assumptions and did not consistently capture costs such as childcare or household goods and repairs. The FCA also found weaknesses in information flows between intermediaries and lenders, narrow outcomes testing focused on point-of-completion measures, incomplete record-keeping that hindered quality assurance, and intermediary fees that were materially higher than in the first charge market, typically 2.5% to 15% of the loan amount with the majority between 10% and 12.5%, alongside limited transparency and limited supporting analysis in FVAs. The FCA expects second charge firms and their boards to consider the findings and take remedial action, and it is communicating directly with firms included in the review while continuing sector monitoring through supervision. It is also considering rulebook changes to support better outcomes for customers consolidating debt, including through work on protecting vulnerable customers in the Mortgage Rules Review.

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