Mortgage prisoners are borrowers who have been moved onto a reversion rate, which is usually the lender’s standard variable rate, when their original mortgage deal expired. But they cannot move to a cheaper product because they do not fit the affordability criteria, which is tougher now since new rules were introduced in 2014.
The Financial Conduct Authority (FCA) has identified around 10,000 mortgage prisoners whose loans are with active lenders and may be eligible to move to a better loan.
But there are 120,000 mortgage prisoners who cannot move because their mortgage has been sold onto investors who are not lenders and are therefore not regulated by the FCA. A further 20,000 mortgage prisoners are with lenders who are no longer lending.
The FCA is looking at this as a matter of urgency but the law may need to be changed to address the unregulated sector.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “It cannot make sense to deny a cheaper deal to someone who has maintained a good record with higher payments.”
A cross-industry voluntary commitment by UK Finance (the financial services trade body), the Building Societies Association and the Intermediary Mortgage Lenders Association was launched in July. To date 67 lenders, representing 95% of mortgage providers, have agreed to write to the 10,000 borrowers by the end of this year if they are able to offer alternative products.
To be eligible, borrowers must be up to date with their mortgage payments, have a minimum remaining term of two years and a minimum outstanding loan amount of £10,000.
But for those borrowers whose mortgages are with unauthorised firms, Woolard said: “If need be we will discuss with government whether a change in our regulatory perimeter or any other government support is needed to protect those customers where mortgages are transferred to the unregulated sector.”
Jackie Bennett, director of mortgages at UK Finance, added: “We are actively exploring with the FCA what might be possible for customers of inactive lenders or unregulated owners – which actually make up the majority of those that the FCA identified and who are not UK Finance members.”
