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Technology·Analysis

What the FCA found in second charge — and what your systems aren't capturing

The regulator's March review flagged weak debt-consolidation rationale, missed living costs, unclear fees and patchy records. Most of those are data problems, and data problems can be fixed.

By The EditorUpdated 3 min read
The newsOn 12 March 2026 the FCA told second charge firms to raise standards, warning that weaknesses put borrowers consolidating debt "at increased risk of financial harm".
Why it mattersEvery failing it listed is something a case system either captures, or quietly lets slip.
What's nextContinued supervision over the next year, and possible mortgage policy changes for customers consolidating debt.

Second charges are a small corner of the mortgage market: typically less than 4% of regulated mortgage sales, by the FCA's own measure. The regulator's message was blunt all the same. "The second charge market is relied on by people often already heavily in debt," said executive director David Geale. "It's vital it works well, but we've found that standards are not always where they need to be. This needs to change."1

Read the findings closely and most of them describe information that was never captured, never passed on or never kept.

Five gaps the review exposed

  1. Why consolidate, and what else was considered

    The FCA found advice that "steered customers towards debt consolidation when it was not clear if it was appropriate", and files that didn't show whether advisers had considered alternatives, such as whether to "engage with existing creditors to renegotiate monthly payments".1,2

    The capture gap: a free-text note isn't evidence. Systems need a structured reason for consolidating, the alternatives discussed, and why each was ruled out, recorded before the recommendation.

  2. Living costs that never made it onto the form

    Affordability assessments "appeared to overlook key living expenses". Some lenders didn't account for household goods or repairs, and some "assumed that no childcare costs applied when a child reached primary school age".1,2

    The capture gap: category-by-category expenditure prompts, with a flag when a figure is zero or falls well below a sensible benchmark.

  3. Lost in the handoff from broker to lender

    "Some intermediaries did not always pass on all relevant customer information to lenders", so lenders sometimes "appeared to underestimate the customer's expenditure". The FCA also reminded lenders that they are responsible for affordability under MCOB 11.6, and can't outsource or delegate that responsibility when an intermediary is involved.2

    The capture gap: structured data sent to the lender field by field, not a PDF summary or an email attachment that drops the detail.

  4. Fees nobody could compare

    The FCA cited "unclear fees, often added to loans, making comparisons difficult". The intermediary fees it saw "typically represented 2.5% to 15% of the loan amount", materially higher than for first charge mortgages. Fair value assessments didn't always explain how fees were set, and firms didn't routinely publish their fees on their websites.1,2

    The capture gap: every fee recorded with its basis, the total cost shown with fees added to the loan, and a fair-value record per product.

  5. Records you can't reconstruct

    "Inadequate record keeping" made the regulator's list: advisers didn't always document key discussions, such as why particular debts were or weren't being consolidated. Outcomes testing "sometimes appeared narrow, focusing on customer satisfaction at the point funds were released".1,2

    The capture gap: a timestamped trail of who did what and when, and outcomes measured after completion as well as on the day.

Check your own system
  • Can you show, for any case, why consolidation was recommended and which alternatives were ruled out?
  • Does expenditure capture force a figure, even zero, for childcare, repairs and household goods?
  • Does the lender receive every expenditure line you captured?
  • Is the full fee, and the cost of adding it to the loan, recorded and shown to the client?
  • Could you rebuild the file, with timestamps, if the FCA asked tomorrow?

What to watch

The FCA says that over the next year it will keep working with firms and monitoring the market, take action where it has concerns "using the full range of regulatory powers where needed", and begin to consider whether mortgage policy needs to change for customers consolidating debt.1

Separately, FCA CP26/18, which closed on 28 July 2026, proposes making clear that the credit-impaired definition applies only to the extra steps for debt-consolidation mortgages in MCOB 11.6.16R, an example in MCOB 4.7A.22G and reporting (para 5.11). The FCA expects to publish its policy statement in the second half of 2026.4

Sources

  1. 1FCA, “Second charge mortgage firms told to raise standards for consumers (12 March 2026)”David Geale's comments, the market share, the four headline issues and the FCA's next steps.
  2. 2FCA, “Second charge mortgages – improving outcomes for consumers (good and poor practice, 12 March 2026)”The detailed findings on alternatives, living expenses, information passed to lenders, MCOB 11.6, fees, record keeping and outcomes testing.
  3. 3Mortgage Solutions, “Second charge mortgage advice 'needs to change', says FCA (12 March 2026)”Contemporary trade coverage of the review.
  4. 4FCA, “CP26/18: Mortgage Rule Review: Supporting first-time buyers and underserved consumers (June 2026), consultation paper PDF”The credit-impaired proposal (para 5.11), the 28 July 2026 close and a policy statement in the second half of 2026 (para 1.27).

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