The Financial Conduct Authority (FCA) has confirmed that it has removed barriers that stop some mortgage customers from finding a cheaper mortgage deal.
The rule change means that around 30,000 homeowners now have the freedom to move elsewhere. In some cases, so-called “mortgage prisoners” have previously been told that they cannot afford a new mortgage deal even though the monthly cost could potentially be lower than that which they were already paying.
The new rules allow lenders to use a different and more proportionate affordability assessment for customers who meet certain criteria, such as being up-to-date with payments under their existing mortgage and not looking to move house, or borrow more (except to finance certain fees).
The FCA has also confirmed that customers of inactive lenders and firms not authorised for mortgage lending (who are unregulated) will have to be contacted and told that 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 “Responsible lending is hugely important, and unaffordable borrowing is a cause of significant harm. 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.”
“We are also taking steps to help those who have mortgages with inactive lenders or unregulated entities to ensure that they are aware that they may now be able to switch and save money.”
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.”
The FCA wants customers to benefit from these changes as soon as possible so the new rules are coming into force immediately. The FCA has been working closely with firms to help them get ready.”
Director of Mortgages at UK Finance Jackie Bennett said “The regulated mortgage industry supports all measures to help creditworthy borrowers on reversion rates switch to a better deal, and has already implemented a voluntary agreement that led to 26,000 customers of active lenders being offered a new deal in 2018.”
“We look forward to the FCA publishing up-to-date information on borrowers with inactive firms, allowing the industry to develop products that meet these customers’ needs where individual active lenders have the commercial and risk appetite to do so.”
“However, there is a risk that the regulator’s changes could unduly raise expectations among some customers on reversion rates who must now be contacted but may find they are unable to secure a new mortgage. In particular, this may include customers of inactive firms who are in negative equity, in current or recent arrears or on an interest-only mortgage with no repayment strategy.
“We will continue to work with the FCA’s implementation group as these changes are rolled out, and also urge the government to consider what more could be done to help customers of inactive firms who are unlikely to benefit from the new rules.”
Mark Gordon, Director of Mortgages at comparethemarket.com, said “For too long many mortgage holders have been paying more than they need to every month in repayments as a consequence of being stuck on an uncompetitive Standard Variable Rate (SVR) mortgage. By removing barriers that stop certain borrowers from finding a cheaper deal, the FCA’s announcement will be welcomed by mortgage prisoners across the country. The FCA’s proposals are clearly intended to reduce the time and cost of switching more generally, which is a win-win for consumers. With many competitive fixed rate deals available on the market, the immediate introduction of these reforms is a welcome opportunity for homeowners to be more choosy when shopping around for a mortgage.”
However, the rule change excludes thousands trapped on high rates who may have missed repayments, need to move for medical or family reasons or if they are in their fifties or sixties and have an interest-only mortgage according to Seema Malhotra, Labour and Cooperative MP who co-chairs the All-Party Group on Mortgage Prisoners. Malhotra said “The FCA’s own analysis suggests that these reforms won’t help 90% of mortgage prisoners.”