The issue of ‘mortgage prisoners’ – people who are trapped on unfavourable mortgage deals – has certainly attracted considerable publicity in recent years.
The Financial Conduct Authority has now invited the UK’s mortgage intermediary firms to get in touch with the regulator if they believe that they may be able to assist these ‘prisoners.’
The FCA estimates that there are 170,000 borrowers who have mortgages with closed book firms or with unregulated entities, but who are up to date with payments and would be eligible to switch mortgages.
The administrators of these mortgages are required to contact the affected customers by December 1 2020. The information that will be provided to these customers will include a list of mortgage intermediaries who may be able to assist, so any firm that wishes to be included on this list needs to apply to the FCA by August 6.
To be eligible for inclusion on the list of intermediaries, a firm needs to meet all of the following criteria:
- They must have access to mortgages that represent the whole of the market
- They must either be able to advise on later life options, such as equity release, retirement interest-only mortgages, and mortgages into older age; or they must have an established arrangement to refer these enquiries to another intermediary who can advise on these products
- They must either be able to advise on debt consolidation; or they must have an established arrangement to refer these enquiries to another intermediary who can advise on this option
- They must not charge a fee until an application is submitted to a lender
- They must be willing to collect data on the support they have provided to the mortgage prisoners, and to share this data with the FCA
The FCA suggests that suitable strategies for mortgage prisoners, depending on their individual circumstances, might include:
- Switching them to a like-for-like re-mortgage, but with relaxed underwriting criteria, such as only requiring lenders to demonstrate that the new repayments are lower than those on the existing product
- Later life lending options
- Re-mortgaging to an interest-only product with some form of repayment strategy. This strategy could be the sale of the property where this is realistic
- Re-mortgaging to a part capital and part interest-only mortgage
- Debt consolidation
On July 13 2020, a cross-party group of MPs wrote to the Chancellor of the Exchequer, calling for a range of measures to be taken to protect mortgage prisoners, such as a cap on standard variable rate margins and a ban on mortgages being sold to private equity funds.
Another letter written by the MPs, to the Competition and Markets Authority, highlights that the average interest rate being paid by a mortgage prisoner is 4.4%, whereas a typical commercial mortgage interest rate might be around 1.8%.
Rachel Neale of the UK Mortgage Prisoners campaign said:
“Families are being crippled by these high interest rates and aren’t able to live properly because of it. We need action immediately before things get even worse and drive people into further arrears or cause repossessions.”
A spokesman for the Treasury said:
“We know that being unable to switch your mortgage can be stressful. That’s why we’ve introduced rules that will make it easier for some customers to change provider, which we now expect to be in place by the end of the year.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article