Thousands of “mortgage prisoners” who are trapped paying high mortgage rates may soon be able to move to better deals under proposals announced by the Financial Conduct Authority (FCA).
The city regulator’s Mortgages Market Study final report, published on 26th March, proposes relaxing lending rules, which would make it easier for those with unregulated or inactive lenders to switch to a more competitive mortgage deal.
“We are committed to tackling the more complex issue of helping consumers who have mortgages with inactive firms and cannot switch despite being up-to-date with payments and not seeking to borrow more,” the FCA report said: “Lenders have told us that they may have appetite to lend to some of these customers, but that there are regulatory barriers preventing them from doing so.
“We are consulting on changes to our responsible lending rules to deliver a more proportionate, modified affordability assessment for consumers who are up-to-date with payments on their existing mortgage and who are looking to switch to a more affordable mortgage without borrowing more.”
Who would the proposed changes benefit?
Around 150,000 homeowners are currently stuck paying high mortgage rates because they don’t meet strict affordability criteria introduced following the 2014 Mortgage Market Review.
Of this number, around 30,000 are on reversion rates, typically standard variable rates, with companies that are authorised to lend, whilst 120,000 are customers of firms which aren’t authorised to lend.
These “mortgage prisoners” could potentially move to better deals if the FCA’s proposals are adopted, but only if they aren’t looking to borrow more and simply want to reduce their borrowing costs.
The importance of reviewing your mortgage
The final report also found that a further 800,000 homeowners who are able to switch and who would benefit from doing so continue to stick with their existing deals.
The FCA said that on average these borrowers could save £1,000 a year in the first two years by moving to a better deal. Many inactive consumers have been paying higher rates than they need to for more than five years.
If you’re not sure whether you’re paying too much for your mortgage, check your current rate and whether you’re tied in. If you’re free to move, check out our remortgage best buys to see the best available deals, and speak to one of our advisers if you need help working out which deal is likely to suit you best.
City watchdog proposes help for mortgage prisoners