In an FCA review, it says that lenders and brokers in the second charge mortgage market need to consider how they advise customers, assess affordability and charge fees.

The watchdog’s review found that weaknesses in some firms’ practices could put borrowers, particularly those consolidating debt, at risk of financial harm.

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 and advice that steered customers towards debt consolidation when it was not clear if it was appropriate.

Further issues included inadequate record keeping and unclear fees, often added to loans, making comparisons difficult.

The FCA has called on all second charge firms to consider the findings carefully and take appropriate action.

The regulator says it has continued its engagement with the firms included in the review to ensure shortcomings are addressed.

While the FCA has seen changes taking place already, over the next year it says it will continue to work with firms to drive improvement in the second charge sector.

In addition, it will continue to monitor second charge firms and take action where needed as well as considering any mortgage policy changes needed to support good outcomes for consumers consolidating debt.

FCA executive director of payments and digital finance David Geale says: “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.”

Also commenting is Fairer Finance managing director James Daley, who says: “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.”

Meanwhile, Broadstone head of regulatory practice Damien Burke adds: “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 individual’s 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.”