Lenders pledge to help 'mortgage prisoners'

1 August 2018

Lenders representing 93% of the residential mortgage market will be contacting thousands of ‘mortgage prisoners’ trapped on high interest rates to offer them a chance to switch to a better deal.

Moneywise reported the plight of such mortgage misfits back in March 2017.

But now UK Finance, the trade body representing the finance and banking industry, has announced that 59 authorised lenders have agreed a common approach to help existing borrowers trapped on ‘reversion rates’ – the rate which a mortgage will revert to once any incentive or fixed-rate period ends.

These mortgage prisoners are up to date with repayments but, because of stricter affordability criteria, are currently ineligible to move to an alternative product provided by their lender.

The news comes after the Financial Conduct Authority (FCA) raised concerns about mortgage prisoners in its interim Mortgage Market Study back in May and involves a cross-industry commitment to tackle the problem supported by UK Finance, the Building Societies Association (BSA) and the Intermediary Mortgage Lenders Association (IMLA).

The regulator estimates that there are around 10,000 borrowers on a reversion rate, who are up to date with repayments and would benefit from switching to a new deal but can’t.

Jackie Bennett, director of mortgages at UK Finance, says: “Lenders have responded to the FCA’s challenge and made a voluntary commitment to help these longstanding borrowers, offering them the ability to switch to an alternative product if they meet the agreed standard criteria – a potential solution that covers 93% of the residential mortgage market. We expect more lenders to participate in the coming months.”

Commenting on the new initiative, Ishaan Malhi, chief executive of online mortgage broker Trussle, adds: “It’s been a while coming, but it’s a huge relief that lenders are finally making a commitment to solve the crisis of mortgage prisoners.

“Homeowners who are currently trapped on their lenders’ standard variable rate are being hit with more than £6,500 extra interest per year on their mortgage. Those in London are worst affected, paying an astonishing £9,364 more in annual interest, which over the course of three years equates to the same cost as a full deposit for an average UK property.”

The cross-industry commitment focuses on customers who have mortgages with regulated lenders which are active in the market and are able to offer alternative products to their existing borrowers.

It does not cover around 20,000 customers who have mortgages with inactive lenders and around 120,000 customers with unregulated mortgage providers, which are not members of UK Finance, the BSA or the IMLA.

What happens next?

Lenders have undertaken to write to any qualifying borrowers by the end of 2018 if they haven’t already done so. 

If you are a mortgage prisoner you don’t need to take any action and are not obliged to switch if you don’t want to.

See below for a list of the lenders which have committed to the voluntary agreement, provided by UK Finance:

1. Accord Mortgages

2. Bank of Ireland UK PLC

3. Bank of Scotland

4. Barclays UK Plc

5. Barnsley Building Society

6. Bath BS

7. Beverley Building Society

8. Britannia

9. Buckinghamshire BS

10. Cambridge Building Society

11. Chelsea Building Society

12. Chorley Building Society

13. Clydesdale Bank

14. The Co-operative Bank plc

15. Coventry Building Society

16. Darlington Building Society

17. Direct Line

18. Dudley Building Society

19. Family Building Society

20. First Direct

21. Halifax

22. Hanley Economic Building Society

23. Hinckley & Rugby Building Society

24. HSBC plc

25. Ipswich BS

26. Kensington Mortgages

27. Leeds Building Society

28. Leek United Building Society

29. Lloyds Bank

30. Mansfield Building Society

31. Market Harborough Building Society

32. M&S Bank

33. Metro Bank

34. Nationwide Building Society

35. NatWest

36. Newbury Building Society

37. Newcastle Building Society

38. Nottingham Building Society

39. Norwich & Peterborough BS

40. One Savings Bank Plc

41. Platform

42. Principality Building Society

43. Progressive Building Society

44. RBS plc

45. Saffron Building Society

46. Santander UK Plc

47. Scottish Building Society

48. Scottish Widows Bank

49. Skipton Building Society

50. Stafford Railway Building Society

51. Teachers Building Society

52. Tesco Bank

53. Tipton & Coseley Building Society

54. Ulster Bank

55. Vernon Building Society

56. Virgin Money Holdings (UK) plc

57. West Bromwich Building Society

58. Yorkshire Bank

59. Yorkshire Building Society

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