The Financial Conduct Authority has announced that it will consult on changes to lending regulations in order to help free mortgage prisoners.

In a letter to Nicky Morgan MP, chairwoman of the Treasury Committee, Andrew Bailey, chief executive of the FCA, said the FCA’s consultation would aim to revise its affordability assessment in an attempt to help remaining mortgage prisoners switch from a high loan-to-value mortgage with an inactive lender to mortgages with active lenders.

There are around 120,000 people with mortgages from firms that are not authorised to lend as well as 20,000 who are with firms that are inactive and no longer lending, according to the FCA. 10,000 mortgage customers also have loans with active, authorised lenders who are also unable to switch to a better deal for various reasons, according to the analysis performed by FCA.

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These individuals could benefit from switching to other mortgage lenders as well as receiving support from the industry to contribute towards practical solutions for these groups, the letter from Andrew Bailey says.

An agreement is now in place for these borrowers with UK Finance, the Building Societies Association and the Intermediate Mortgage Lenders Association, that allows borrowers on a reversion rate to move to a better deal with their existing lender, should they meet certain criteria.

Next steps

The mortgage industry needs to be willing to offer products to these kinds of mortgage customers once the barrier has been removed, says the FCA.

It has also warned that some situations are more complicated than others. Those who are in substantial arrears with their mortgages, those in negative equity, those in substantial debt and those with very high loan-to-value mortgages, for instance, will find it more difficult to improve their circumstances.

In the letter to Nicky Morgan, Andrew Bailey said: “The key issue for the remaining customers is that their mortgages are held by a firm that does not or cannot offer the customer a new loan so internal switches are typically unavailable. In our view, the solution for such customers is, therefore, a switch to an active lender, with whom they may be able to get a better deal.

We want to remove the potential barriers in our rules to these customers switching to a cheaper mortgage. To help these customers, we will consult on changes to our responsible lending rules with the aim to deliver more proportionate affordability assessment. We intend to move the affordability assessment from an absolute test to a relative test.” He also added.

A word from UK Finance

Responding to FCA’s letter to the Treasury Committee on improving switching options, Jackie Bennett, Director of Mortgages at UK Finance, said: “It is a positive step that the FCA has set out the action it will take to help those customers stuck on reversion rates who are with inactive or unregulated lenders.

“The FCA has noted the progress made through the industry’s voluntary agreement to help borrowers with active lenders switch to a better deal.

“But it has also recognised that regulatory changes are needed to remove the barriers to helping the thousands more customers who are currently with inactive and unregulated lenders.

“We will continue to work constructively with our broad range of members and the FCA to help ensure those customers who want a like-for-like mortgage can switch lenders more easily.”

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Jim Kersey
Jim focuses on the socio-economic impact of housing. His reporting for Property Notify often touches on topics such as changes in sentiment among investors in various housing sectors, as well as the impact of various developments on the average person.

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