City watchdog says it could amend rules to rescue ‘mortgage prisoners’
City watchdog the Financial Conduct Authority (FCA) said today it could change its lending rules to help so-called mortgage prisoners switch to more affordable deals.
Mortgage prisoners are homeowners, often paying expensive rates, who are unable to switch deals despite being up-to-date with their mortgage payments.
The regulator is proposing to amend its responsible lending rules and guidance so lenders can choose to undertake a modified affordability assessment where the consumer is up-to-date with their mortgage payments, does not want to borrow more and is looking to switch to a new mortgage deal on their current property.
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It is also proposing that inactive lenders and administrators acting for unregulated entities will be required to review their customers books to identify eligible consumers and write to them informing them of this rule change.
Mortgage lenders that make use of the modified affordability assessment will be required to disclose to consumers the basis on which their affordability has been assessed and provide additional disclosures about potential risks.
Nicky Morgan MP, chair of the Treasury Committee, said: “Thousands of customers are trapped on a far higher interest rate than is necessary through no fault of their own. Following constant pressure from the Treasury Committee, this confirmation of the FCA’s decision to act is welcome.
“Lending is a commercial decision so the FCA cannot force firms to lend to these mortgage prisoners. But once the regulator’s new rules have come into force, industry should be ready to step up to help those borrowers that meet their risk profile.”
Gillian Guy, chief executive of Citizens Advice, said: “We welcome the FCA’s new proposals to unshackle mortgage prisoners by helping them move on to cheaper deals.
“However, hundreds of thousands of people are still paying over the odds simply for being loyal to their provider.
“The FCA says it’s doing more research to work out why customers aren’t switching, but urgent action is needed now. While the FCA drags its feet loyal mortgage customers are being penalised a staggering £1.4m every day.
“The FCA must now go much further to protect these customers from paying the loyalty penalty. We want to see concrete action by the end of the year to stop loyal customers being taken advantage of.”
Chief executive of digital mortgage broker Trussle, Ishaan Malhi, said: “It’s positive that the FCA has acknowledged the damaging detrimental impact of high Standard Variable Rates (SVRs) for homeowners.
“However, there must be more focus on switching inertia. The lack of transparency continues to prevent borrowers from getting a better and cheaper deal.”
Read more: Mortgage prisoners to be released from expensive loans
Mark Arnold, chief executive of Kensington Mortgages, said: “The FCA seems to be focusing its efforts on finding ways to make sure that more people find it easier to scout out the best deals. That can only be a good thing.
“The answer, in our view, for mortgage prisoners is for the MMR rules to introduce a mortgage affordability test based on the customer's past payment history. It’s therefore encouraging to see a consultation launched to propose these changes to responsible lending rules and guidance as a result of the mortgage market study.”