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47,000 borrowers identified as mortgage prisoners

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30/11/2021
They are unable to remortgage but stuck on deals at high interest rates with lenders that are no longer active
47,000 borrowers identified as mortgage prisoners

The regulator has identified 47,000 borrowers who are mortgage prisoners.

The Financial Conduct Authority said that, ‘despite being up to date with payments, they cannot switch when it might benefit them to do so, because they have loan and/or borrower characteristics that are outside current lender appetite’.

In other words, lenders think they’re too risky to lend to.

It also found 66,000 borrowers who may be able to switch. These borrowers have not yet tried to switch, and the regulator suggested that consumer organisations or a mortgage intermediary may be able to help them assess whether they can save money, or otherwise benefit, by switching.

In total there are 195,000 borrowers with a mortgage with a firm that is now inactive – not lending or able to offer them a new mortgage deal.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “Almost 50,000 mortgage prisoners are still stranded on horrendously expensive mortgages, according to FCA figures, but the real number of people trapped is closer to 100,000, and they face a nightmare Catch 22.

“Prisoners are trapped in a vicious circle. They’re often paying a far higher interest rate than everyone else, and while the average rate of 4.3% is bad enough, 3% of them are paying over 5%.

“It means they’re completely focused on making ends meet, so tackling their underlying problems becomes a Herculean task. If every penny is going on your existing mortgage, it’s harder to pay down a big outstanding interest-only balance. Likewise, if it absorbs a major chunk of your income, you run the risk of missing payments. And both of these things make you more likely to remain a prisoner for even longer.”

Are lenders doing enough?

In October 2019 the regulator changed the rules to try to help mortgage prisoners. It told lenders they could relax the usual affordalibity rules in order to help mortgage prisoners switch to a more affordable deal.

But the results weren’t as positive as expected. The FCA found that only 200 mortgage prisoners have been helped to switch under the new rules from just five lenders.

It said that it hopes more mortgage prisoners will be able to switch their mortgage and encourages lenders to amend their lending criteria to lend to mortgage prisoners who are close to their risk appetite.

Coles adds: “The FCA is calling on lenders to be more flexible with borrowers who are close to meeting their criteria, which it estimates could help 6,000 of these prisoners.

“For those who still can’t remortgage, it hopes they will be encouraged to get help from debt charities or consumer groups on taking steps to make a switch more likely. This includes things like improving their credit score or paying down some of their interest only mortgage. Of course, both these things would be far easier if they were able to get a cheaper deal in the interim.”

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