Credit, Collections & Insolvency News
Mortgage customers who have previously been unable to switch mortgages despite being up-to-date with their payments (commonly known as mortgage prisoners), could soon be able to find a cheaper deal after the Financial Conduct Authority (FCA) proposed changes to how lenders assess whether or not a customer can afford the loan.
In the final report of its Mortgages Market Study, published today, the FCA confirmed its earlier findings that the mortgage market is working well in many respects but falls short of the FCA’s vision in some specific ways. The consultation on new lending rules forms part of a package of remedies designed to help the market work better.
In addition, the remedies package includes:
Christopher Woolard, Executive Director of Strategy and Competition at the FCA said “The market is working well for many with high levels of customer engagement and competition. The package of remedies we are taking forward will benefit consumers by encouraging innovation and making it easier for them to find the right mortgage.”
“We are particularly concerned about consumers – who are commonly referred to as mortgage prisoners – who are currently unable to switch. That is why we are acting now to help remove potential barriers in our rules. These changes should make it easier for consumers to get a more affordable mortgage.”
The FCA has proposed that, for those customers who are up-to-date with their mortgage payments, and seeking to move to a more affordable deal without borrowing more, active lenders will be able to undertake a more proportionate assessment of whether they can afford the new loan.
The FCA is particularly concerned about customers of inactive lenders and entities not authorised for mortgage lending as they are unable to move to a new deal with their existing lender. To ensure these customers are made aware of this change, inactive lenders and administrators of entities not authorised for mortgage lending will be required to review their customer books to identify and contact eligible customers.
Teresa Fritz, Proposition Manager at the Single Financial Guidance Body (SFGB), said “The new mortgage adviser directory will be a valuable tool for consumers, helping them choose an intermediary that provides regulated, personalised advice, and offering products from a wide range of providers. In addition, consumers will be able to search for intermediaries who specialise in the less mainstream areas of lending such as equity release or lending to the self-employed.”
“Over the coming months the SFGB will be working closely with the Financial Conduct Authority and industry stakeholders to develop the tool, based on the model of our retirement adviser directory which has already helped many consumers make more informed decisions when choosing an adviser.”
Jackie Bennett, Director of Mortgages, UK Finance, said “We agree with the findings of the FCA’s final Mortgage Market Study report that the mortgage market is, on the whole, working well. Lenders have been working closely with the regulator, responding to the challenge of so-called “mortgage prisoners” with a voluntary industry-wide agreement which has already seen firms contact over 26,000 customers. The regulator’s offer of more flexibility around affordability testing is encouraging. This will help those customers who are up to date with payments or who are not looking to borrow more.”
“Requiring inactive lenders and administrators of entities not authorised for mortgage lending to review their existing customer books to identify and contact eligible customers is a positive step. However, even under these proposals, there are thousands more customers with inactive lenders or unregulated owners that the regulated industry would be unable to help. We therefore call on the government to work with the FCA to ensure that all customers, regardless of owner, have full regulatory protections to ensure they are treated fairly.”
“The report also recognises the diversity within the mortgage market which has continued to develop. In recent years, lenders have made considerable strides in contacting customers both pre and post the end of a fixed term, making it easier for people to switch on to a new rate. In 2018, this accounted for nearly £150 billion of product transfers with just over half of customers taking advice when they do a product transfer. We therefore look forward to contributing to the further consultation on advice and the consumer research as to why customers do not switch.”
Paul Broadhead, Head of Mortgages & Housing at the Building Societies Association (BSA) said “It is positive to see FCA recognise that the mortgage market broadly works well although one sentiment that should be addressed is the perceived idea that the cheapest mortgage equals the best mortgage – this is always not the case.”
“We recommend that borrowers seek advice before taking out a mortgage to ensure they get the best deal for their individual circumstances, not simply the cheapest product.”
“While the proposed new affordability test is a positive step, there will be some borrowers that will not be in a position to switch mortgages. In order to ensure that these customers are treated fairly it is vital that the government ensures there are adequate consumer protections in place.”
“The BSA will continue to work closely with FCA to make improvements to the mortgage market as customers’ demands and needs continue to evolve.”
Gillian Guy, Chief Executive of Citizens Advice, said “We welcome the FCA’s new proposals to unshackle mortgage prisoners by helping them move on to cheaper deals. However, hundreds of thousands of people are still paying over the odds simply for being loyal to their provider.”
“The FCA says it’s doing more research to work out why customers aren’t switching, but urgent action is needed now. While the FCA drags its feet loyal mortgage customers are being penalised a staggering £1.4m every day.”
“The FCA must now go much further to protect these customers from paying the loyalty penalty. We want to see concrete action taken to stop loyal customers being ripped off by the end of the year.”
