FCA calls on lenders to amend criteria to help mortgage prisoners

30th November 2021

The Financial Conduct Authority (FCA) has urged banks and building societies to consider changing lending criteria to help an estimated 47,000 borrowers who could benefit from a cheaper mortgage but are currently unable to move.

The regulator’s review of mortgage prisoners found that about 195,000 households have had debts sold on to inactive lenders, with it shown that a quarter of these could save money if they were allowed to switch to a new deal.

The review also highlighted that there are 30,000 mortgage borrowers who are unlikely to benefit from switching. They are up to date with payments but can’t switch because of their loan and/or borrower characteristics. However, the interest rate they’re on means they would be unlikely to save money from switching- so they aren’t mortgage prisoners.

Of the remaining borrowers with mortgages in closed books, 34,000 are in payment shortfall, and 18,000 are near term. These borrowers wouldn’t be able to switch to a new deal, even if they were with an active lender.

The review, which looked at the position of borrowers whose loans were sold on to new lenders after the financial crisis, found that about 47% were paying an interest rate between 3% and 5%, compared to 17% of borrowers with active lenders, while 3.3% were locked into paying interest at more than 5%, compared with just 0.8% of other borrowers.

The FCA said “We hope that more mortgage prisoners will be able to switch their mortgage. We encourage lenders to consider if they can amend their lending criteria to lend to mortgage prisoners who are close to their risk appetite. We are publishing data so lenders can consider whether they can adapt their lending criteria (or use the flexibility in our rules) to lend to these borrowers.”

“Other mortgage prisoners who continue to lie outside the risk appetite of lenders may be able to take steps, with the help of consumer organisations or a debt advice charity, to improve their chances of switching to a better deal in the longer term.”

“The Government and industry will use this review to consider if there are further practical and proportionate solutions for mortgage prisoners. We will continue to support them to do this and we will focus on those areas in the market where we identify the greatest harm which could affect mortgage prisoners and other borrowers.”