Mortgage prisoners should be freed, says financial regulator
Mortgage borrowers who have been stuck on their mortgage deal and unable to switch, despite being up-to-date with their payments (known as mortgage prisoners), could soon be free to find a cheaper deal with a new mortgage lender.
The Financial Conduct Authority (FCA) has published its Mortgages Market Study, in which is has proposed changes to how lenders assess whether or not a customer can afford the loan.
What is changing?
The regulator wants lenders to use a ‘more proportionate assessment’ of affordability for those customers who are up-to-date with their mortgage payments, and only seeking to move to a more affordable deal, rather than wanting to borrow more.
This means that lenders will be able to relax existing affordability requirements to free a mortgage prisoner who is stuck on a deal and unable to switch under the tight lending rules introduced in 2014 in the wake of the credit crunch.
The FCA is particularly concerned about customers of inactive lenders and entities not authorised for mortgage lending as they are unable to move to a new deal with their existing lender. These lenders will be required to make their customers aware of the change, so they can look to switch to a better deal.
Christopher Woolard, executive director of strategy and competition at the FCA said: “We are particularly concerned about consumers – who are commonly referred to as mortgage prisoners – who are currently unable to switch. That is why we are acting now to help remove potential barriers in our rules. These changes should make it easier for consumers to get a more affordable mortgage.”
In the final report of its Mortgages Market Study the FCA confirmed its earlier findings that the mortgage market is working well in many respects but falls short in some specific ways. It has suggested a package of measures, including a proposal to change mortgage advice rules, and a directory of mortgage brokers.