FCA raises fresh fears over ‘mortgage prisoners’

By Gary Adams

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Jan 14, 2019
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FCA chief executive Andrew Bailey has written to treasury committee chair Nicky Morgan raising concern over the on-going “mortgage prisoner” issue, in which he details plans to publish a consultation paper this spring.

The term refers to borrowers who have been moved to reversion rates and are unable to switch to a cheaper mortgage due to changes in affordability assessment rules following 2016’s mortgage credit directive.

The FCA estimates that there are 140,000 people who face such a barrier.

In his letter, Bailey writes that the consultation will focus on potential changes to the body’s responsible lending rules, “with the aim to deliver a more proportionate affordability assessment.

“We intend to move the affordability assessment from an absolute test to a relative test. Thus, the test would be whether the mortgage costs are more affordable than the current mortgage costs.

“Our focus will be on those customers who are seeking to move to a cheaper mortgage and are not borrowing more to ensure that a new mortgage is more affordable for these customers,” he adds.

Bailey also calls on the industry to help matters by offering remortgaging products once the barriers he speaks of are removed. However, he adds that “participation will be a commercial decision… not all will have the risk appetite to participate,” highlighting the fact that borrowers in arrears, with high LTV deals, who have “considerable” debts or are in negative equity may prove problematic still.

In response to the letter, Morgan says: “These customers are trapped on a far higher interest rate than is necessary through no fault of their own.

“The FCA has today announced that it will consult on changing its lending rules to allow such customers to switch to an active lender, with whom they may be able to get a better deal.

“The regulator must now act swiftly to help these 140,000 mortgage prisoners, and not use this consultation to kick the issue into the long grass.”

Treasury Committee member Rushanara Ali adds: “The FCA appears to be taking steps in the right direction to ensure that mortgage prisoners aren’t stuck making higher-than-necessary mortgage payments.

“Whilst there is clearly more work to be done by the regulator, industry also has a vital role to play. As Mr Bailey said, firms need to be willing to offer re-mortgaging opportunities to these customers once the regulatory barriers are removed.

“I hope the FCA will ensure the regulatory barriers are removed as soon as possible and that the FCA closely monitors the actions of the lenders in this regard.”

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