Government to ‘explore solutions’ for mortgage prisoners
The government has pledged to explore solutions for borrowers trapped on deals with lenders that no longer offer new products.
It promised to look at this issue as a ‘top priority’ and is working with the financial regulator to find solutions for these borrowers, according to John Glen MP, economic secretary to the Treasury, in a letter to Nicky Morgan, chair of the Treasury Select Committee.
What is a mortgage prisoner?
Many borrowers found themselves unable to remortgage to a new deal following the tightening of mortgage criteria after the credit crunch, because what was deemed affordable changed significantly under new lending rules.
This has been partially addressed with the vast majority of active lenders agreeing to offer their standard variable rate borrowers access to a more competitive rate, such as a fixed rate mortgage (assuming they are up to date with repayments and not looking to borrow more money).
But the agreement doesn’t help those borrowers with lenders that no longer offer new mortgages – such as Bradford & Bingley and Northern Rock Asset Management – both of which were nationalised during the credit crunch and no longer offer new deals.
Some borrowers with these inactive lenders are stuck paying relatively high standard variable rates compared to other borrowers who are able to switch deals. The government intends to look at options that could be made available to these mortgage prisoners.
Jackie Bennett, director of mortgages at UK Finance, said: “We strongly support the Government’s commitment to explore potential solutions for customers who have mortgages with inactive lenders.
“The industry has already made a voluntary commitment to help longstanding borrowers on reversion rates with active lenders switch to a new deal.
“However, many ‘mortgage prisoners’ are with inactive lenders or unregulated owners and therefore cannot switch to a new deal due to current legislation.
“We will continue working closely with the Government and FCA to look at how active lenders might be able to support these customers. This could include changing the current rules to make it possible for customers who want a like-for-like mortgage to move between lenders more easily.”