The Financial Conduct Authority (FCA) has announced it is doing more to help people stuck paying high mortgage rates who are unable to switch onto a new deal – a demographic known as ‘mortgage prisoners’.
Since the Mortgage Market Review was introduced in 2014 new customers have had to pass stress tests to get a mortgage, effectively proving they can afford to keep paying the loan if interest rates go up.
However, that has adversely affected some people who took out mortgages before the rules came into force.
While customers with active lenders are already being helped, there are 140,000 with lenders who aren’t taking on new business who are unable to switch or remortgage.
These customers are in some cases stuck paying expensive rates of interest and have therefore attracted the attention of the regulator.
What the FCA proposes
The FCA is launching a consultation in Spring on moving affordability assessments to a ‘relative test’ rather than treating everyone as a new customer.
Effectively this will mean people who aren’t borrowing more can switch to a cheaper mortgage than they currently have.
With the changes the FCA is looking to help homeowners with inactive or unauthorised lenders move to a new lender – the only question mark is how many active lenders (i.e. those who still accept new business, committed to helping prisoners last year) will be willing to take on these new customers.
How action started last year
In May 2018 the FCA published an interim report called the Mortgages Market Study, which urged lenders to allow customers to switch to a cheaper deal, as long as they were up to date with payments and didn’t look to borrow more.
In response 59 lenders agreed to assist these prisoners in July 2018, covering 93% of the residential market.
The agreement was formed as a result of a cross-industry agreement with trade bodies UK Finance, the Building Societies Association and the Intermediary Mortgage Lenders Association.
Not every mortgage prisoner can be freed
Even if the proposals go ahead, it seems that not every mortgage prisoner can be assisted.
The FCA’s chief executive Andrew Bailey warned that customers in arrears, with very high loan-to-value mortgages, with considerable debts or with mortgages in negative equity are unlikely to be helped.
A positive response to the announcement
It seems there is plenty of appetite to carry out the FCA’s plan, both inside and outside the mortgage industry.
MoneySavingExpert founder Martin Lewis labelled it a “welcome and sensible move”.
Watch this space, but it seems the financial regulator is determined to help as many mortgage prisoners as possible this year.
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