The interim findings of the Financial Conduct Authority’s (FCA) Mortgage Market Study have highlighted the challenge of mortgage prisoners. In addition, the report says long-term and lifetime lending is another concern and that the FCA is looking to firms to use their common sense to make sure they’re matching the right products to the right consumers. For markets to move forward and adapt requires the highest level of trust. This will only be gained through the long-term, consistent, fair treatment of customers.

It is estimated that there are around 120,000 mortgage prisoners whose loans are held by firms that are not authorised by the Financial Conduct Authority but may benefit from switching to a cheaper loan. These are mainly mortgages that have been sold onto investors, who are unregulated as lenders and therefore do not have to follow FCA rules. In order to address this, legislation may be required.

Mortgage prisoners are borrowers who are on reversion rates and are up-to-date with repayments but, because of stricter affordability criteria, can’t move to an alternative mortgage. A further 20,000 mortgage prisoners are in closed books, i.e. their mortgage is with a lender who is no longer actively lending.

Speaking at the UK Finance Conference, Christopher Woolard, Executive Director of strategy and competition at the FCA, said this is a complex issue that requires creativity from the regulator and a coordinated effort from lenders. “The objective is clear – to see if, between us, we can help these customers to benefit from being able to switch to another lender. From our side, we are challenging ourselves to look at improving our regulation so it isn’t a barrier to customers switching. Affordability is integral to our responsible lending rules. And it would not help anyone to switch to a mortgage they cannot afford. But we are open to considering whether we can provide additional flexibility in a way that is in line with our obligations.”

“It cannot make sense to deny a cheaper deal to someone who has maintained a good record with higher payments. We need to see a willingness from industry to offer remortgaging opportunities to those who currently don’t seem to have them. We expect firms to engage with this work as we move forward, and to consider the opportunities to take on these customers.”

“If need be we will also discuss with government whether a change in our regulatory perimeter or any other government support is needed to protect those customers where mortgages are transferred to the unregulated sector. t simply isn’t an acceptable argument to hide behind the intricacies of our regulatory perimeter when real families are involved.”