FCA second charge review: what the regulator found and what brokers should do

On 12 March 2026 the FCA published “Second charge mortgages – improving outcomes for consumers”, a good and poor practice report based on supervisory work with second charge intermediaries and lenders. Its stated aim was to understand how industry practices meet the requirements of the Consumer Duty and the Mortgage Conduct of Business sourcebook (MCOB), and how intermediaries and lenders work together at every stage of the customer journey.

The work covered three areas: the quality of advice, “particularly where debt is being consolidated”; how intermediaries and lenders assess affordability; and the costs to consumers. The FCA says its sample covered “a market share of over 40% of second charge advice firms, and around 50% of second charge lenders”. It also reviewed intermediaries’ Fair Value Assessments, and in some cases compared the broker’s advice file with the lender’s affordability assessment for the same customer.

The FCA explains why the market matters despite its size. Second charge mortgages are “typically less than 4% of regulated mortgage sales”, consumers “mostly use them to consolidate debt”, and “a significant proportion of customers may have characteristics of vulnerability, including low financial resilience”.

The review did not come out of nowhere. In its portfolio letter to mortgage intermediaries dated 30 January 2025, the FCA said it had seen “some firms failing to consider whether a secured loan is appropriate for customers in financial difficulty”, and that it would review firms’ “systems and controls, and quality assurance procedures” over the following two years.

The FCA saw good practice across intermediaries and lenders, but said it was “disappointed to find evidence of some poor practices that can create a risk of poor customer outcomes”. The press release of 12 March 2026 summarised the issues as follows.

The core message is that eligibility is not suitability. The FCA says “it is important that advisers focus both on whether consumers are eligible for the loan and if it is genuinely suitable for their needs and circumstances”. It found advisers who did not discuss the root causes of growing unsecured debt, and “several cases where advisers appeared to encourage consumers to consolidate additional debts to enable the case to pass the lender’s affordability test, without recording clear reasons”.

Some files were missing the basic facts needed to judge consolidation, such as the interest rates of existing debts, accurate balances and early repayment charges. Some firms told consumers upfront that they could not help them consider other options, closing the discussion down. The FCA’s case study describes a consumer who asked for £12,000 over 6 years for home improvements and was sold a £24,000 loan over 15 years, including £12,500 of debt consolidation and £3,000 in charges, leaving £8,500 for the home improvements.

The FCA restates the rule. Where the main purpose of a mortgage is debt consolidation, MCOB 4.7A.15R requires firms, where relevant, to take account of the costs of increasing the repayment period, whether it is appropriate to secure previously unsecured borrowing, and, where the customer is known to have payment difficulties, whether an arrangement with creditors would be more appropriate. It adds: “If a second charge mortgage is not suitable, it must not be recommended.”

The FCA found that “incomplete or inconsistent records made it hard to assess the suitability of advice or the basis of some lending decisions”. In some cases firms could explain their decisions after further probing, but that information “was not always immediately obvious from the customer’s file”. If a regulator cannot reconstruct the reasoning from the file, a firm’s own reviewers usually cannot either.

On quality assurance, the FCA identified intermediary frameworks that “focused on checking they had the right documentation to enable the lender to produce an offer”, without assessing whether the advice was suitable or whether the customer received the right outcome. It notes that more detailed records of customer conversations, such as call recordings, can help firms demonstrate suitability, and points to MCOB 4.7A.25R, which requires a record of the customer’s needs and circumstances and why the advice satisfies the rules.

This finding reaches beyond second charges. The press release says brokers in the wider mortgage market “should consider the findings, especially on record keeping and quality assurance”.

Lenders are responsible for affordability assessments, but brokers gather much of the information they rely on. The FCA found statistical expenditure data that “did not appear to realistically reflect the consumer’s expenditure”, items excluded as one-off without testing whether that was realistic, and intermediaries asking leading questions that risked artificially low figures.

On the lender side, it saw some lenders apply “a blanket policy which assumes no childcare costs apply once children reach primary school age”, ignore household goods and repairs, and “accept customer-declared expenditure at face value, even when there are clear indicators this is inaccurate”. It also saw an intermediary not passing full expenditure details to the lender, even though this could have materially affected the assessment.

For brokers, the practical points are to ask open questions about expenditure, test figures against bank statements and credit information, and pass everything the customer declared to the lender.

The FCA saw some intermediaries “appearing to overlook potential indicators of customer vulnerability that could have been relevant to the application”. Given the profile of second charge borrowers, vulnerability indicators should be captured and acted on during fact-finding, and passed on to the lender where relevant.

Outcomes testing was often narrow. Intermediaries measured outcomes mainly by lenders’ acceptance rates, and lenders focused on satisfaction when funds were released. The FCA reminds firms that SYSC 8 means they cannot outsource their responsibility for regulatory obligations. As good practice, it points to intermediaries using “independent customer surveys undertaken at different stages of the customer journey”, including customers who did not complete.

The FCA found intermediary fees “typically represented 2.5% to 15% of the loan amount, with the majority charging between 10% and 12.5%”, in addition to lender fees. Most intermediaries could not provide enough detail about their costs and income to explain how they set those fees.

It also found that firms “don’t routinely publish their fee information on their website”, and that the first clear mention of the actual fee tended to come at the recommendation stage. It warned that benchmarking against similar firms is not enough on its own in “a small, concentrated market like second charge mortgages”, and that firms should not rely on inefficient business models to justify high costs.

The report includes examples of good practice that brokers can use as a benchmark for their own process.

The checklist below turns the FCA’s findings into questions a reviewer can answer from the file alone. It is a practical starting point, not a substitute for each firm’s own reading of MCOB and the Consumer Duty.

Most of the gaps the FCA describes are easier to prevent than to repair. When the reasons for a decision are captured while the adviser is making it, the file explains itself later and quality assurance can focus on suitability rather than chasing missing documents.

Archway is case-management software for UK mortgage, second charge, bridging and debt consolidation brokers. It guides each case to the right next step and, if something required is missing, such as debt details or the reason for consolidating a particular debt, the case does not move on. Overrides are possible but are recorded with who, when and why, so reviewers can check the exceptions rather than relying only on random samples. Built-in AI reads documents, notes and call recordings into the case and matches statements and credit reports to debts; every value is checked against its source and nothing is saved until a person confirms it.

Archway’s checks support your compliance process. They are not compliance sign-off. Each firm remains responsible for its advice and its regulatory obligations. To see how the second charge journey works, see our second charge CRM page at /second-charge-mortgage-crm.