The regulator, the Financial Conduct Authority, is calling on lenders to relax strict affordability checks to help so-called mortgage prisoners switch to a better deal.
The new rules apply to borrowers who have kept up with repayments, would pay less by moving to a new deal and would not need to borrow more by switching. If all these boxes are ticked, then lenders will be allowed to carry out a more ‘proportionate’ affordability checks on them.
Searching for mortgages
As well as the change to lending rules the FCA also proposed other ‘remedies’ aimed at making it easier for people to find the right mortgage.
It wants lenders to become more innovative by creating tools which help customers search more easily for mortgages. It also wants to set up a system to help people make a more informed choice when looking for brokers.
Richard Campo, managing director of mortgage broker Rose Capital Partners, said the new changes would be a welcome salvation for thousands of homeowners.
“For years these lost borrowers will have been going through heartbreak as they helplessly watched themselves become saddled with high interest rates before being locked out of cheaper deals despite being able to keep up with their repayments,” he said.
“The planned changes would not apply to those wishing to borrow more, only to those who are seeking to lower the cost of their mortgage and banks and building societies would still need to agree to take on these customers.”
He added: “Borrowers should not assume that they are being given a respite by their lender, but should make the most of their new found freedom and explore what the whole market has to offer.”
Who are these ‘mortgage prisoners’?
Tough rules introduced by the FCA in 2014, which meant lenders were forced to put in place strict affordability criteria, have caused many homeowners to become trapped on expensive mortgages.
After customers come to the end of their introductory deal with a mortgage company they automatically revert to their lender’s Standard Variable Rate (SVR) or reversion rate as it is sometimes known. This is usually much more expensive than a remortgage deal.
It is thought there are around 150,000 customers, known as mortgage prisoners, who are stuck on these rates and were not allowed the remortgage because they did not meet the strict criteria.
Switching inertia
However, the FCA revealed, in its report, that there may be as many as 800,000 consumers who are paying a high SVR – many of these could actually switch if they wanted.
According to Mark Gordon, director of mortgages at comparethemarket.com, by not remortgaging these people could be paying £1,000 more than they should each year on their mortgage.
He said: “To avoid falling into the trap of a rip off rate homeowners must check the market in order to make valuable savings on what is often their biggest monthly expense.
“As the FCA today notes, technology and tools are crucial in identifying mortgages for which people qualify, and in helping them make the right choices, so we will continue to work hard to ensure we are providing user friendly tools so people know if better priced deals are available to them.”
Digital mortgage broker, Trussle, also reinforced this message. It’s CEO, Ishaan Malhi, said: “It’s positive that the FCA has acknowledged the damaging detrimental impact of high SVRs for home owners.
“However, there must be more focus on switching inertia. The lack of transparency continues to prevent borrowers from getting a better and cheaper deal.
“There are still hundreds of thousands of borrowers failing to switch their mortgage at the right time. We need to see more innovation and increased transparency across the mortgage industry to help customers navigate the process more easily.”
