Mortgage prisoners may have cause for hope as the Financial Conduct Authority (FCA) concedes rule changes may be necessary to help them.
Under pressure from the Parliamentary Treasury Committee, chief executive of the FCA Andrew Bailey has written to the chair, Nicky Morgan MP to outline proposed fixes that will help mortgage prisoners.
Mortgage prisoners are borrowers trapped on expensive mortgage deals but unable to switch to better deals due to changes to lending rules introduced after they first borrowed the money.
An estimated 10,000 borrowers are trapped on deals from active lenders. Providers have agreed to help these households onto better deals as reported in Moneywise in August 2018.
But this leaves an estimated 140,000 borrowers stuck on mortgages from inactive or unauthorised lenders.
In November 2018 Moneywise reported that John Glen MP, economic secretary to the Treasury had appeared before the committee, but said the hands of the government were tied by EU regulations on the matter.
Now however, Mr Bailey has conceded in a letter to Nicky Morgan that these borrowers will require additional help.
Mr Bailey suggests changes to the rules of affordability assessments to make tests “more proportionate”. He also suggests changing the test from “absolute” to “relative” testing.
This means the new affordability tests will take into account whether a new mortgage deal for the customer is more affordable than the current deal the borrower is on.
It is likely that many mortgage prisoners could pass this test, as fixed-rate deals are generally cheaper than the higher variable rate deals they are stuck with.
Mr Bailey indicates that the regulator will now consult on these changes with lenders with a view to working out the practicalities of remortgage options and how to communicate options to affected customers.
Ms Morgan, chair of the Treasury Committee comments: “The Treasury Committee has consistently raised the problems of mortgage prisoners with the government and the FCA.
“The regulator must now act swiftly to help these 140,000 mortgage prisoners, and not use this consultation to kick the issue into the long grass. We will raise these issues when we take evidence from the FCA next week.”
Rushanara Ali MP, a member of the Treasury Committee, adds: “The FCA appears to be taking steps in the right direction to ensure that mortgage prisoners aren’t stuck making higher-than-necessary mortgage payments.
“Whilst there is clearly more work to be done by the regulator, industry also has a vital role to play. As Mr Bailey said, firms need to be willing to offer re-mortgaging opportunities to these customers once the regulatory barriers are removed.
“I hope the FCA will ensure the regulatory barriers are removed as soon as possible and that the FCA closely monitors the actions of the lenders in this regard.”
Responding to the letter, Jackie Bennett, director of mortgages at UK Finance, the trade body that represents mortgage and other financial providers, says it is a positive step that the watchdog has recognised that regulatory changes are needed.
Ms Bennett adds: “We will continue to work constructively with our broad range of members and the FCA to help ensure those customers who want a like-for-like mortgage can switch lenders more easily.”