Mortgage prisoners should be helped without delay, says Nicky Morgan, chair of the Treasury Committee.
The member of parliament is calling on the Treasury to act immediately to help so-called mortgage prisoners.
Mortgage prisoners are those who are stuck with mortgages at high rates, as they are no longer able to fit stringent lending criteria to unlock a remortgage deal. As many as 150,000 people are said to be in such a situation.
It can occur when mortgage eligibility rules become tighter after someone has taken out a loan so they no longer qualify for a new deal, or when a borrower's circumstances change so they no longer qualify for a cheaper fixed-rate deal.
In August Moneywise reported that mainstream lenders had agreed to help existing borrowers trapped in such deals. However, the vast majority are stuck with mortgages from inactive lenders, such as defunct Northern Rock and Bradford & Bingley, as many as 140,000 according to the committee.
John Glen, economic secretary to the Treasury appeared before the committee on 30 October, and acknowledged later in a letter to the committee that many borrowers were in a “difficult and stressful situation”.
However, the economic secretary says in his letter that lenders’ hands are tied due to stringent European Union directives relating to mortgages. The EU’s Mortgage Credit Directive (MCD) prevents lenders from waiving the affordability requirements when a borrower moves to a new lender.
The Financial Conduct Authority (FCA) has flexibility to allow exemptions, but only if the borrower does not increase the size of the debt when remortgaging.
Ms Morgan says: “Time is clearly of the essence. People are trapped repaying their mortgages on a far higher interest rate than is necessary through, as the Economic Secretary said, no fault of their own.
“Whilst the FCA has said it can help a few thousand mortgage prisoners – those with authorised lenders – this does nothing to help the 140,000 customers with inactive lenders.”
Rushanara Ali MP, member of the Treasury Committee, adds: “The government and the FCA have found an answer for customers of active firms. They must now be bold and innovative in finding a swift solution for mortgage customers of inactive firms.
“The Committee will continue its work on this and keep a watchful eye on the Government and regulator’s actions.”