Help with Mortgage Prisoners
Chris Broome – Chartered Financial Planner
Some mortgage customers find it hard to shop around to get a cheaper deal.
These so-called mortgage prisoners could find life more comfortable in the future after the Financial Conduct Authority (FCA) announced the removal of the barriers they face.
New rules introduced by the FCA mean mortgage lenders can use a different and more proportionate affordability assessment for customers who meet specific criteria.
It means that mortgage customers who are up-to-date with their payments on the existing mortgage and not looking to move house, or borrow more, should have a greater choice of new mortgage deals.
Customers of inactive mortgage lenders and unregulated firms not authorised for mortgage lending will have to be contacted with the news it is simpler and easier to switch to another lender.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said:
“Responsible lending is hugely important, and unaffordable borrowing is a cause of significant harm. Mortgage prisoners are often stuck on more expensive mortgages. We are removing barriers to switching in our rules and we would like to see firms make changes to their own processes quickly in order that customers can benefit as soon as possible.
“We are also taking steps to help those who have mortgages with inactive lenders or unregulated entities to ensure that they are aware that they may now be able to switch and save money.”
The new rules follow an earlier consultation, with feedback suggesting the definition of a more affordable mortgage should be simplified.
The consultation responses also resulted in allowing eligible mortgage customers to finance intermediary fees, as well as product or arrangement fees, through the new mortgage.
To enable mortgage prisoners to benefit from the new rules quickly, the regulations are coming immediately into force.
Responding to the FCA’s policy statement on changes to mortgage responsible lending rules and guidance, Director of Mortgages at UK Finance Jackie Bennett commented:
“The regulated mortgage industry supports all measures to help creditworthy borrowers on reversion rates switch to a better deal, and has already implemented a voluntary agreement that led to 26,000 customers of active lenders being offered a new deal in 2018.
“We look forward to the FCA publishing up-to-date information on borrowers with inactive firms, allowing the industry to develop products that meet these customers’ needs where individual active lenders have the commercial and risk appetite to do so.
“However, there is a risk that the regulator’s changes could unduly raise expectations among some customers on reversion rates who must now be contacted but may find they are unable to secure a new mortgage. In particular, this may include customers of inactive firms who are in negative equity, in current or recent arrears or on an interest-only mortgage with no repayment strategy.
“We will continue to work with the FCA’s implementation group as these changes are rolled out, and also urge the government to consider what more could be done to help customers of inactive firms who are unlikely to benefit from the new rules.”
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