A Financial Conduct Authority (FCA) review, published today, found that weaknesses in some firms’ practices could put borrowers, particularly those consolidating debt, at increased risk of financial harm. Lenders and brokers in the second charge mortgage market need to consider how they advise customers, assess affordability and charge fees.
Second charge mortgages are often used by customers with high existing levels of debt and low financial resilience. The FCA’s review found examples of good practice across the sector but also issues that raise concerns about whether firms are meeting expectations, including under the Consumer Duty. The issues identified in the review include:
- Affordability assessments that appeared to overlook key living expenses
- Advice that steered customers towards debt consolidation when it was not clear if it was appropriate
- Inadequate record keeping
- Unclear fees, often added to loans, making comparisons difficult
David Geale, executive director of payments and digital finance at the FCA, said:
“The second charge market is relied on by people often already heavily in debt. It’s vital it works well, but we’ve found that standards are not always where they need to be. This needs to change.”
The FCA is calling on all second charge firms to consider the findings carefully and take appropriate action. Brokers for the wider mortgage market should consider the findings, especially on record‑keeping and quality assurance, and whether they can make improvements.
The regulator has continued its engagement with the firms included in the review to ensure shortcomings are addressed. While the regulator has already seen some of the market act on its calls to improve customer understanding, over the next year it will:
- Continue to work with firms to drive improvements across the second charge market
- Keep monitoring second charge firms and take action where it has concerns – using the full range of regulatory powers where needed
- Begin to consider any mortgage policy changes needed to support good outcomes for consumers consolidating debt
Damien Burke, Head of Regulatory Practice at leading independent Banking & Credit Advisory consultancy Broadstone, commented:
“Second charge mortgages have been traditionally used to provide a practical option for borrowers who need to manage existing debt without refinancing their primary mortgage, particularly in a higher interest rate environment where remortgaging may not be viable. The market has changed somewhat in recent years with borrowers just as likely to be financing home improvements or paying for school fees.
However, as the FCA’s findings highlight, these products are still used by customers with limited financial resilience. Whatever the need, robust affordability assessments are essential to understanding individuals’ affordability, and a growing number of firms and individuals are turning to Open Banking and Open Finance data to fulfil that need, with an FCA Research Note released in March 2025 stating there are 13.3 million active Open Banking users in the UK. Not all lenders or brokers offer that capability though.
The issues identified around affordability checks, debt consolidation advice and fee transparency go to the heart of the Consumer Duty and you cannot provide good advice unless you first understand the individual’s circumstances. Firms must be able to clearly demonstrate that the recommendations they make genuinely deliver good outcomes for customers, rather than simply increasing borrowing or extending debt burdens.
This review should act as a prompt for lenders and brokers across the wider mortgage market to revisit their processes, affordability assessments, documentation and oversight. Ensuring that customers fully understand the benefits, costs, risks and alternatives to second charge borrowing will be essential if the market is to maintain trust while continuing to provide an important source of credit for households seeking alternative finance options.”
In response to the FCA’s review into second charge mortgages, James Daley, managing director of consumer group Fairer Finance said:
“It’s encouraging to see the FCA shining the spotlight on a sector which often deals with financially vulnerable customers. It’s clear that many firms are not living up to the high standards set by the Consumer Duty, and it’s vital that the FCA’s work in this sector does not end with today’s announcement. It’s nearly three years since the Consumer Duty came into force – and where it identifies poor conduct, it’s vital that the regulator makes use of its enforcement powers.
“Over the past year, we’ve seen the regulator talking much more about deregulation than consumer protection, and it runs the risk that firms will perceive this message to mean that the pressure is off. There are still many areas of financial services where firms are falling well short of the Consumer Duty – and the FCA needs to show that there are consequences for bad practice.”
Tom Eyre, CEO and Co-founder at Loqbox, comments:
“I’m glad to see the FCA shining a light on second‑charge mortgages, particularly where they’re being pushed as a quick fix for people already in difficulty. A second mortgage can be the right tool in some circumstances, but when you’re rolling unsecured debts into a loan secured on your home, over a much longer term, the risks are obvious. For many households, it looks cheaper month‑to‑month. In reality, it quietly increases the total cost of their borrowing and the chances they could ultimately lose their property if things go wrong.
At Loqbox, our mission is to build better borrowers, not just move balances around. If the regulator and industry really want to champion the financial wellbeing of these customers, they need to go further than gentle warnings. That means: much tougher suitability checks when consolidation is involved; forcing firms to show customers, in plain pounds and pence, the total cost and term before and after the switch; automatic signposting to free, independent debt advice where the primary driver is financial distress; and stronger outcome‑testing under Consumer Duty so products that repeatedly leave people worse off simply don’t pass muster.
Incentives for lenders and intermediaries should prioritise helping customers reduce debt and build resilience, instead of channelling short‑term problems onto the family home.”
