Mortgage prisoners to be freed under new agreement
Lenders have agreed to help borrowers who are stuck paying repayments at Standard Variable Rates (SVR) because they don’t pass stricter affordability rules for cheaper deals, which came into force after they first had a mortgage.
So-called mortgage prisoners will be able to switch to better offers from their existing lender, under the new industry common standards, which have been adopted by 59 providers representing more than 90% of the residential mortgage market.
Lenders will write to qualifying borrowers by the end of 2018, giving them the opportunity to move to a new product, should they wish.
The standards apply to first-charge customers of an active lender on a reversion rate on a like-for-like mortgage.
Borrowers must also be up to date on repayments to qualify, have a minimum remaining term of two years and have a minimum outstanding loan amount of £10,000.
The common standards are the outcome of joint efforts from UK Finance, the Building Societies Association and the Intermediary Mortgage Lenders Association (IMLA).
It comes after the Financial Conduct Authority (FCA) raised concerns about mortgage prisoners in its interim report Mortgage Market Study.
Paul Broadhead, head of mortgage and housing policy at the Building Societies Association (BSA) said: “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.”