Regulator announces plans to help mortgage prisoners

Around 140,000 homeowners who are stuck paying high interest rate mortgages could soon find it easier to move to cheaper deals, under plans announced by the Financial Conduct Authority (FCA). The FCA said it will consult on changing its lending rules, so that ‘mortgage prisoners’ who have mortgages held with unregulated or inactive firms can switch to lenders who may be able to offer them a better deal. The FCA has been working on this issue over the past year, and published its interim report into the mortgage market last May. What are mortgage prisoners?Mortgage prisoners are homeowners who can’t remortgage or move to a better rate due to changes in criteria following the financial crisis. Rules introduced following the Mortgage Market Review (MMR) in 2014, mean that borrowers must be able to demonstrate they could cope with higher mortgage payments if interest rates were to rise in future. They were introduced to prevent people taking out mortgages which they can’t afford but tougher criteria has left many people trapped paying high interest rates through no fault of their own. In a letter to the Treasury Committee of MPs, Andrew Bailey, chief executive of the FCA said: “We want to remove 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 a more proportionate affordability assessment.”The new affordability tests would focus on whether new mortgage costs are more affordable than current mortgage costs.Help for complex casesThe FCA has already taken steps to help 10,000 mortgage prisoners with active, authorised lenders, by asking these lenders to commit to allowing customers to switch to a cheaper deal as long as they are up to date with their mortgage payments and aren’t looking to borrow more. However, the FCA acknowledged that the latest proposed rule changes aimed at those with inactive or unregulated lenders wouldn’t help everyone. For example, those who are in arrears, have considerable debts, very high loan to value mortgages or mortgages in negative equity could still struggle to move to new deals. It said we may see a ‘two-tier’ approach with lenders offering a choice to those with the simplest needs and a range of specialist lenders who could manually underwrite more complex cases. Proposals to help these customers alongside the final report of the Mortgage Market Study will be published this spring.