The Economic Secretary to the Treasury, John Glenn, has penned a letter to the Treasury Committee detailing his directives to officials currently working alongside the Financial Conduct Authority (FCA) and approved mortgage lenders, to help mortgage borrowers who have found themselves trapped in ‘reversion rate’ mortgages.
Reversion rates are the rates that a mortgage will return to at the end of an incentive and fixed-rate period. This letter has stemmed from the earlier news this year that there are thousands of borrowers being locked into mortgages with reversion rates from inactive and unregulated lenders.
These unfortunate mortgage borrowers are finding themselves trapped with higher interest rate repayments and unable to move to an alternative deal on their current reversion rate mortgages. This is due to a recent increase in the mortgage lending sector’s regulation. The Economic Secretary, in his recent letter, is calling for the Treasury and other regulatory bodies to address this pressing issue in order to provide a solution for the lending industry.
Recent regulations in place for UK mortgage lenders allow them to waive the standard affordability requirements for existing and new borrowers looking to re-mortgage their homes without increasing the size of their overall mortgage loan.
There are also exemptions in place to help borrowers with a particularly large mortgage and who are finding themselves struggling to re-mortgage their homes under the new UK mortgage lending rules.
The problem for those trapped in ‘reversion rate’ mortgages from unregulated and inactive lenders is that they are unable to take advantage of the new UK mortgage lending rules, due to the current EU lending guidelines, which were passed shortly afterwards.
The Minister’s letter has pointed out that although UK Finance, the Intermediary Mortgage Lenders Association (IMLA) and the Building Societies Association (BSA) all have voluntary agreements in place to help these so-termed ‘mortgage prisoners’, those who have mortgages with unregulated and inactive lenders are still at risk of being trapped by the EU’s regulations.
The Economic Secretary to the Treasury, John Glenn, comments on this situation in his letter: “I agree wholeheartedly that borrowers who find themselves unable to access cheaper mortgage deals are in a difficult and stressful situation.”
“While it is right and sensible that regulation since the financial crisis has put an end to the poor lending practices of the past, better deals should not be beyond the reach of customers who are continuing to pay their mortgage.”
“That is why, as part of the reforms to mortgage lending introduced by the Financial Conduct Authority’s (FCA) ‘Mortgage Market Review’ (MMR) in April 2014, lenders were able to waive affordability requirements for new and existing customers that were remortgaging but not increasing the size of their debt.”
“…While this action has improved the position of borrowers with active lenders, I agree that more still needs to be done to help those who have mortgages with inactive lenders. I have made it clear to my officials, as I set out my responses to the Committee on 30th October, that exploring solutions for these customers is a top priority.”
Back in May this year, the FCA’s concerns over ‘mortgage prisoners’ were published in the Interim Mortgage Market Study. The result of this was the launch of a UK-wide commitment in accordance with UK Finance, IMLA and the BSA, a few months later in August, in order to help tackle the issue.
The lending regulator, UK Finance, has estimated that around 10,000 borrowers are currently trapped in a ‘reversion rate’ mortgage and are likely to benefit from a change to a better deal if restrictions were no longer in place under EU regulation.
Earlier in August 2018, UK Finance announced that 59 authorised mortgage lenders had agreed to a shared approach to help provide relief for ‘mortgage prisoners’. However, borrowers who have been treated unfairly are able to make a formal complaint to their mortgage lender and if they are unsatisfied with the result, they can then raise their complaint with the Financial Ombudsman Service.
The Director of Mortgages at UK Finance, Jackie Bennett, has commented on the ministerial letter: “We strongly support the government’s commitment to explore potential solutions for customers who have mortgages with inactive and unregulated lenders.”
“The industry has already made a voluntary commitment to help longstanding borrowers on reversion rates with active lenders switch to a new deal. However, many ‘mortgage prisoners’ are with inactive lenders or unregulated owners and therefore cannot switch to a new deal due to current legislation.”
“We will continue working closely with the government and FCA to look at how active lenders might be able to support these customers. This could include changing the current rules to make it possible for customers who want a like-for-like mortgage to move between lenders more easily.”