The Financial Conduct Authority (FCA) has announced it is considering introducing new procedures that could allow lenders to solve what has become known as the ‘mortgage prisoners’ problem.
The problem arises from rules which the FCA introduced in 2014 requiring lenders to carry out stricter affordability checks. This meant that many borrowers were unable to switch their mortgage deal as they would fail the affordability check, and instead the slightly perverse situation arose where these ‘prisoners’ were forced to continue with their existing mortgage arrangement, even though they would reduce their payments were they allowed to switch.
The regulator previously announced proposals that could assist 10,000 of these mortgage prisoners. These customers are now permitted to switch to cheaper deals with their existing lender provided they are not seeking to borrow additional funds, and have kept up to date with their repayments, and this switch can occur regardless of whether they would pass the lender’s normal affordability check.
However, this previous announcement did nothing to help the estimated 140,000 borrowers who have a mortgage either with an inactive lender – one that no longer offers new mortgages – or with a lender not regulated by the FCA. Some previous Northern Rock and Bradford & Bingley customers fall into these categories for example.
A letter from FCA chief executive Andrew Bailey to the chair of the Treasury Select Committee, Nicky Morgan MP, now reveals that the regulator is considering allowing these borrowers to switch to new mortgage deals with other lenders, and again the affordability test would be ‘relative’ rather than ‘absolute’, i.e. will the monthly repayments on the proposed new deal be lower than their present arrangement?
Ms Morgan commented:
“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.”
The FCA will commence a formal consultation on this issue in spring 2019.
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