So-called ‘mortgage prisoners’, trapped on expensive deals and unable to switch to cheaper loans, are a reflection of a dated lending environment, says Ross Boyd, founder of the 'always-on' mortgage switching platform, Dashly.com. Here he examines their plight and asks what can be done to help them.
The percentage of mortgage prisoners out there is small, if not tiny, compared to the market as a whole. But that doesn’t make the case to set these people free from the punitive Standard Variable Rates (SVRs) they are stuck on any less pressing.
The moral imperative to help out this small minority is growing by the day and you sense a solution is not far off to circumvent what Chris Woolard, a senior figure at the Financial Conduct Authority (FCA), describes as the “intricacies of the regulatory perimeter”.
In slightly plainer English, Woolard is conceding that something has to be done by the Government or Regulator, and soon, to override an affordability regime that, as well-intentioned as it is, betrays an absolute lack of common sense in the case of mortgage prisoners.
Why it is absurd?
These people are trapped in the bizarre position where, despite managing to meet their mortgage repayments at significantly inflated SVRs, they are told they cannot afford a cheaper rate because they do not meet today’s far stricter affordability criteria.
Who needs to go to a Harold Pinter or Samuel Beckett play when the Theatre of the Absurd is unfolding right before our eyes within the UK mortgage sector?
The biggest irony of all is that the banks are actually keen to get these prisoners back into the regular mortgage system — they’ve shown their repayment mettle, after all — but doing so could create issues with the FCA.
The mortgage prisoners debate is symbolic of a bigger narrative unfolding, focused on the fundamental need to change the way consumers are treated by financial services providers full stop — cue the recent super-complaint lodged by the Citizens’ Advice with the Competition and Markets Authority (CMA) to prevent people from being ripped off by financial companies for being loyal.
In the mortgage world, the fact that people are ejected out of fixed rates, like past-their-best Top Gun pilots, into the thankless sea of SVRs is an obvious example of this ‘loyalty penalty’.
For me, the plight of mortgage prisoners and everyday borrowers defaulting onto SVRs reflects a dated lending environment in which people are required to fit the mortgage product rather than vice versa.
How technology can help
Thankfully, this is all set to change, with conversations at progressive banks already taking place about the need to evolve their models. Essentially, new technologies are emerging that are using open banking, big data and machine learning to turn the way people secure mortgages on its head.
These technologies will effortlessly help borrowers switch by alerting them (and, where relevant, their advisers) in real-time to mortgage products they will be applicable for. These products will be designed uniquely for them from lenders that actually want their business, and they’ll be able to switch without so much as lifting a finger.
We’re entering a socially-conscious era for financial services where providers that don’t adhere to the new ‘customer-centric’ rules will fast become irrelevant. It’s an era where the SVR will quickly look like an anachronism.
It’s finance, Jim, but not as you know it. It’s finance for good.
