The Financial Conduct Authority (FCA) is asking borrowers and lenders if it is fair that banks can raise the rates on loans when they are stressed.
Banks gave the mortgages before the crisis and did not expect the Bank of England’s base rate to fall to 0.5 per cent for five years.
As a result, their margins and profits have been squeezed unexpectedly hard, and some banks have activated clauses in the contracts to hike those rates and restore their margins.
The FCA is not questioning the legality of the move, but does fear the rate hikes are not fair to customers.
“One consequence of these changes is that it may make the mortgage contract less attractive to consumers,” the FCA’s discussion paper said.
“Interest rates can be expected to increase as the economy improves and this may have a further impact on consumers and/or the changes that firms may wish to make to their mortgage contracts.”
The FCA could stop banks from selling products with these emergency clauses in, or make them publish the terms more clearly, rather than in the small print.