New rules to free ‘mortgage prisoners’ trapped on expensive deals
Around 150,000 so-called mortgage prisoners are unable to move to a more affordable home loan despite being up to date with their mortgage payments. They are trapped because either they took their mortgage out before the financial crisis and now do not meet stricter lender criteria introduced after the crash, or their lender is inactive or unauthorised to offer new loans.
But the Financial Conduct Authority (FCA) confirmed today that lenders will be able to use a “more proportionate” affordability assessment for remortgaging or switching mortgage prisoner customers who are up to date with their mortgage payments, do not want to borrow more, and want to remain at their current property.
The FCA also said lenders acting for inactive or unregulated firms will have to contact customers to tell them it has become simpler and easier for them to switch to another lender.
Christopher Woolard, executive director of strategy and competition at the FCA said: “Mortgage prisoners are often stuck on more expensive mortgages. 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.”
The FCA has made some changes to its proposals in light of feedback received to its consultation, which include simplifying the definition of a more affordable mortgage and allowing eligible consumers to finance intermediary fees, as well as product or arrangement fees, through the new mortgage.
Jameel Lalani, head of mortgages at MoneySuperMarket, said: “In almost every other market, it’s easy for people to take control of their bills and switch to another supplier or lender, so there’s no reason why this should be any different when it comes to mortgages.
“Nobody should be in a situation where they’re stuck in a mortgage arrangement they can’t get out of. The new rules outlined today by the FCA should make life easier for the so-called ‘mortgage prisoners’ to engage in the market, find the right product for their needs and put an end to needlessly overpaying on their home loan. By removing the barriers to switching, it should also drive innovation and competition amongst lenders, which should only increase consumer benefit.”