More should be done to help ‘mortgage prisoners’, those homeowners that are unable to switch to a better deal, according to the city regulator the Financial Conduct Authority (FCA).
The FCA’s interim report into the mortgage market, published earlier this month, found that although the mortgage market works well for most people, more help should be provided to those who are struggling to get a new mortgage deal.
What is a ‘mortgage prisoner’?
Around 30,000 ‘mortgage prisoners’ took out mortgages before the financial crisis and have made their monthly payments on time. However, they may be unable to remortgage because they don’t meet current stricter lending rules introduced following the Mortgage Market Review (MMR) back in 2014.
These require borrowers to provide evidence that they could afford steeper payments if interest rates were to rise in the future. The aim of the rules is to ensure that lenders act responsibly, and don’t offer people mortgages which they can’t pay off, but they have left many trapped in their current deals.
Christopher Woolard, director of strategy and competition at the FCA, said: “For many the market is working well with high levels of consumer engagement. However, we believe that things could work better with more innovative tools to help consumers. There are also a number of long-standing borrowers that have kept up-to-date with their mortgage repayments but are unable to get a new mortgage deal; we want to explore ways that we, and the industry, can help them.”
Around 10,000 mortgage prisoners have their mortgages with active lenders, whilst the other 20,000 have their mortgages with inactive lenders who no longer issue new mortgages, such as Bradford & Bingley and Northern Rock.
The FCA’s other interim findings showed that there is plenty of choice available for mortgage customers, and that most homeowners are proactive about seeking out competitive rates.
Over three-quarters of consumers switched to a new mortgage deal within six months of moving onto their lender’s standard variable rate (SVRs). According to our own research around 4m homeowners are currently on an SVR, despite the fact switching to a cheaper deal could potentially knock hundreds of pounds a year off mortgage costs.
The FCA said there isn’t an easy way for consumers to be confident at an early stage which mortgage deals they’ll qualify for, and this can prevent them from shopping around. Around 30% of customers fail to find the cheapest mortgage for them.
If you’re unsure which mortgage to choose, a mortgage broker can crunch the numbers on your behalf to help you find the best possible deal. They will not only have access to deals available directly from lenders, but also mortgages which may only be available via intermediaries.
Even if you are with an inactive lender, it is still worth seeking advice on the options available to you, particularly as lenders are increasingly aware of the importance of helping existing mortgage customers.
The FCA is consulting on its interim findings and will publish its final report around the end of the year.
Help needed for mortgage prisoners, says FCA