FCA moves to set thousands of mortgage prisoners free
The financial regulator is proposing changing affordability assessments as part of package of measures aimed at helping so-called mortgage prisoners.
It is thought there are around 150,000 customers, excluding those who are in arrears, who are unable to switch mortgages, despite being up-to-date with payments.
Of those, many are trapped in more expensive mortgages because they fail stiffer affordability criteria introduced following the 2008 financial crisis.
The Financial Conduct Authority is therefore proposing for customers who not in arrears and who are not seeking to borrow more – just to move to a more competitive deal – lenders should undertake a more proportionate assessment of whether they can afford the new loan.
Christopher Woolard, executive director of strategy and competition at the FCA, said that the mortgage market was generally “working well for many, with high levels of customer engagement and competition”.
But he added: “We are particularly concerned about consumers, who are commonly referred to as mortgage prisoners, who are currently unable to switch. This is why we are acting now to help remove potential barriers in our rules. These changes should make it easier for consumers to get a more affordable mortgage.”
Other mortgage prisoners remain stranded with more expensive deals because their lenders have become inactive or are no longer authorised for mortgage lending. The FCA is therefore recommending that these types of lenders identify and contact eligible customers, to help them move.
The recommendations were included in the final report, published on Tuesday, from the FCA’s wide-ranging Mortgages Market Study.
As well as measures to help mortgage prisoners, other proposals include ensuring innovative tools are adopted more quickly, so customers can more easily identify what mortgages they qualify for; consulting on potentially changing mortgage advice rules; and a recommendation for the Single Financial Guidance Body to extend its existing retirement advisor directory to include mortgage intermediaries, thereby allowing customers to make a more informed choice when looking for a broker.
Jackie Bennett, director of mortgages at the financial services trade body, UK Finance, agreed that requiring inactive lenders and administrators of entities not authorised for mortgage lending to review their existing customer books to identify and contact eligible customers "is a positive step".
"However, even under these proposals, there are thousands more customers with inactive lenders or unregulated owners that the regulated industry would be unable to help. We therefore call on the government to work with the FCA to ensure that all customers, regardless of owner, have full regulatory protections to ensure they are treated fairly."
Bennett noted that lenders contacting customers at the end of a fixed term mortgage has so far accounted for nearly £150bn of product transfers.