Mortgage prisoners could be freed under new rules
The Financial Conduct Authority (FCA) has changed lending rules that previously stopped some mortgage customers from finding a cheaper mortgage deal.
Lenders will be able to use a ‘more proportionate affordability assessment’ for borrowers who are up-to-date with payments, not looking to move house, or borrow more.
Some of these mortgage prisoners had been stuck on their lender’s standard variable rate, unable to switch, because lending rules tightened after they originally took out their mortgage.
This problem is compounded for borrowers with lenders that are now inactive, or unauthorised, because they can’t even switch to a better rate with their own lender. Many have been locked into their existing mortgage for years, stuck paying expensive rates of interest.
Now the regulator has said customers of these inactive and unauthorised lenders must be contacted and told it has become easier for them to switch to a new lender.
Christopher Woolard, from the FCA, said: “We are removing barriers to switching in our rules and we would like to see firms make changes to their own processes quickly in order that customers can benefit as soon as possible.
“We are also taking steps to help those who have mortgages with inactive lenders or unregulated entities to ensure that they are aware that they may now be able to switch and save money.”
Too good to be true?
The news will be encouraging for the estimated 150,000 mortgage prisoners, but the lender trade body warned that not all will be able to switch, even under the new rules.
Director of mortgages at UK Finance Jackie Bennett, said: “There is a risk that the regulator’s changes could unduly raise expectations among some customers on reversion rates who must now be contacted but may find they are unable to secure a new mortgage. In particular, this may include customers of inactive firms who are in negative equity, in current or recent arrears or on an interest-only mortgage with no repayment strategy.
“We will continue to work with the FCA’s implementation group as these changes are rolled out, and also urge the government to consider what more could be done to help customers of inactive firms who are unlikely to benefit from the new rules.”