59 lenders who collectively represent 93% of the UK mortgage market have reached agreement on a joint strategy to assist borrowers who are currently paying the Standard Variable Rate on their mortgages, and who are unable to re-mortgage to a better deal with their existing lender as they would not meet the stricter affordability criteria introduced in recent years.
UK Finance, the Building Societies Association (BSA) and the Intermediary Mortgage Lenders Association (IMLA), all trade associations that represent major mortgage lenders, jointly announced the initiative at the end of July 2018.
The affected customers do not need to take any action and are under no obligation to switch if that option is offered. Their lenders will write to them prior to the end of 2018 to explain their options.
In order to qualify for the scheme, borrowers must meet all of the following criteria:
- They must be owner occupiers
- They must have a first charge mortgage on their residential property
- They must currently be paying the reversion rate (the rate to which the mortgage reverts after any fixed or discounted offer period)
- They must be completely up-to-date with their repayments
- Their mortgage must have at least two years to run
- Their outstanding mortgage must be at least £10,000
- They must be able to benefit from switching their mortgage deal
It is thought that around 10,000 borrowers could benefit. However, it should be noted that these customers will only have access to deals offered by their current lender, and not those available across the market, and also that not all major mortgage lenders have signed up to the scheme. The announcement also does nothing to help the estimated 20,000 people whose mortgage is held with a lender that is not currently active in the marketplace, or the 120,000 who had mortgages with non-regulated firms, such as some former customers of Northern Rock and Bradford & Bingley.
The Financial Conduct Authority (FCA) says it “will work closely with industry to discuss the detail of this arrangement and monitor the impact” of this initiative. It was the FCA who challenged lenders to come up with a solution to the issues faced by ‘mortgage prisoners’ when it published its Mortgages Market Study Interim Report in May 2018.
Jackie Bennett, Director of Mortgages, UK Finance said:
“Lenders have responded to the FCA’s challenge and made a voluntary commitment to help these longstanding borrowers, offering them the ability to switch to an alternative product if they meet the agreed standard criteria – a potential solution that covers 93 per cent of the residential mortgage market. We expect more lenders to participate in the coming months. Furthermore, we will be working closely with the FCA and active lenders to see what might be possible for customers of inactive and unregulated lenders. Participating lenders will be contacting qualifying homeowners so for now, customers don’t need to do anything but wait to hear from their mortgage provider.”
Paul Broadhead, Head of Mortgage and Housing Policy at the Building Societies Association (BSA) said:
“It is pleasing that the FCA recognises that the mortgage market works well for the vast majority of borrowers. By signing up to this voluntary agreement lenders will ensure that existing borrowers are not disadvantaged by the changes to mortgage regulation since the financial crisis. The agreement formalises the actions that many societies have been taking and provides clarity and confidence for all affected borrowers.”
Kate Davies, Executive Director of the Intermediary Mortgage Lenders Association (IMLA) said:
“The FCA’s Interim Report on its Mortgage Market Study acknowledged that the mortgage market is generally working well for the majority of borrowers. It noted that some improvements could be made for the minority groups who find themselves unable to switch products, as a result of regulatory changes brought into effect since they took out their loans. This initiative will help a number of those borrowers, and further work is planned to address the needs of others.”
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