There are currently hundreds of thousands of customers, known as mortgage prisoners, who are stuck on their lenders’ expensive reversion rates because their initial deals have come to an end and they cannot remortgage.
Many are trapped because of tough rules introduced by the Financial Conduct Authority (FCA) in 2014, which meant lenders had to put in place strict affordability criteria.
But in a letter to a Government committee, the FCA chief executive Andrew Bailey said it wanted to ‘remove potential barriers’ in its rules to these customers switching to a cheaper mortgage.
He said the FCA would look at changes to its responsible lending rules to make affordability assessments more fair.
Customers who were in arrears, had high loan-to-value mortgages, significant debt or mortgages with negative equity would not benefit from the rule changes, Bailey said.
But he told MP Nicky Morgan, who is chair of the Treasury Committee, the customers who did not fall into these categories might be able to switch to a better deal under its proposed rule changes.
An agreement has already been made between mortgage trade bodies to help the 10,000 customers whose loans are with active, authorised lenders. It will mean they can switch provided they meet certain criteria.
However, this latest rule change is aimed at the 20,000 customers whose mortgages are with firms known as inactive lenders, those which are authorised but are no longer lending commercially and the 120,000 mortgage prisoners with unregulated firms which are not authorised to lend. Examples of customers on these books could be former Northern Rock borrowers whose loans were sold when the bank collapsed.
Reaction to the proposals
The proposed rule changes have been welcomed by lenders. Jackie Bennett of UK Finance, a trade body for banks and mortgage lenders, said it was a positive step.
Meanwhile, Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “It has never made sense that borrowers are prevented from switching to cheaper mortgage deals because they do not meet their lender’s affordability criteria. Clearly they will be better able to make mortgage payments on a cheaper rate, avoiding missing repayments and getting into debt, which will only exacerbate their situation.
“This issue has caused extreme hardship in some cases and prevented mortgage prisoners from taking advantage of some of the cheapest mortgage rates we have ever seen.”
The FCA is due to publish more information on its strategy for helping mortgage prisoners as part of its Mortgage Market Study in the Spring. The timeframe for implementing the rule changes is not yet known.
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