FCA writes to Treasury on how to remove regulatory barriers for 'mortgage prisoners'

Written by Oliver Wade
10/01/2019

Financial Conduct Authority (FCA) chief executive Andrew Bailey wrote to Treasury Committee chair Nicky Morgan to address the treatment of ‘mortgage prisoners’ and remove the barriers preventing them from switching to a more suitable deal.

Of those mortgage customers that are unable to switch, the authority has identified 10,000 customers with active and authorised lenders, 20,000 mortgage customers with firms that are no longer lending commercially though being authorised to do so, and 120,000 customers of firms that are not authorised to lend.

In a bid to support those mortgage prisoners trapped in deals with active lenders, the FCA proposed in its recent Mortgage Market Study Interim Report that lenders should commit to allowing customers to switch to a cheaper deal when they are up to date with payments on their current mortgage, and are not looking to borrow more. This initiative was welcomed by UK Finance, the Building Societies’ Association and the Intermediary Mortgage Lenders’ Association, and they subsequently now allow borrowers on a reversion rate to move to a better deal with their existing lender when they meet certain criteria.

Following this ruling, sixty-seven authorised lenders, making up 95 per cent of the residential mortgage market, have signed up to the agreement.

The FCA highlighted that 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”, meaning that internal switches are typically unavailable. The authority has suggested that the solution for such customers is a switch to an active lender.

Following the implementation of the Mortgage Credit Directive in 2016, mortgage lenders have been required to undertake an assessment of new customers, regardless of how much they are looking to borrow.

As a result of this, the FCA will consult on changes to its responsible lending rules, with the intention of delivering a more “proportionate” affordability assessment, moving it from an absolute test to a relative test.

Responding to the letter, UK Finance director of mortgages Jackie Bennett 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.”

FCA chief executive Andrew Bailey concluded the letter by stating that the authority will publish its consultation paper setting out its proposals to remove regulatory barriers to switching for mortgage prisoners, alongside the final report of the Mortgage Market Study, this Spring.

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