Parliament is set to further discuss a bill today aimed at improving mortgage transfers and banning the sale of mortgage debt to unregulated institutions.
In the second hearing of the Banking (Consumer and Small Business Protection) bill MPs will be warned that the government needs to do more to help so called mortgage prisoners.
Writing in ConservativeHome, Conservative MP Charlie Elphicke who proposed the bill as part of the ‘Ten Minute Rule Bill’, claimed regulators need to be more active if consumers are being protected.
He wrote: “The government should be lending a helping hand, not a tin ear. The Treasury should not be selling mortgages off to vulture funds like Cerberus without protection.
“The regulators should be doing their bit to help free the mortgage prisoners.
“This is an issue the government should be acting upon. We want people who work hard to be able to enjoy success. Yet we will not tolerate people being taken advantage of or unfairly losing out. That is why we need to forge a new covenant to deliver greater fairness for borrowers and set the mortgage prisoners free.”
Elphicke is concerned about people who are trapped in a mortgage where the interest rate might be as much as 7%, and are unable to switch to the lower rates available elsewhere.
He estimated that there are around 200,000 people who are effectively trapped in their current mortgages by affordability tests, and he wants to stop the Treasury selling their mortgages to vulture funds, which he says can have harsh and unfair consequences for the mortgage holder.
Furthermore he recognised there has been some change, pointing to the FCA helping people who are up to date with payments but said the FCA’s proposals only give lenders the option – they would not be introducing a requirement.
Elphicke therefore welcomed UK Finance’s voluntary agreement, where lenders committed to support existing mortgage prisoners to switch to an alternative product at their present lender.
He highlighted that many mortgage prisoners have mortgages taken out in and before 2007, before regulatory changes, and have proved their ability to pay for over a decade by making their mortgage payments.
Elphicke added: “Given this, it makes no sense to have a computer driven affordability test that ignores what’s been happening in the real world. The Treasury and the regulators at the FCA need to move past ‘computer says no’ to ‘reality says yes’.”
“What should happen is that these borrowers should be treated as grandfathered against the later regulatory rules that came in.
“Banks should be required by the FCA to offer mortgage prisoners a decent deal and treat them as grandfathered – whether they are an existing customer or not – and the new mortgages should be permitted without any regulatory penalty for the bank they move to.
“The Treasury needs to take responsibility, too. The Treasury has been selling Northern Rock’s loan book to funds like Cerberus.
“When selling these books they should make sure there are protections so that borrowers do not lose out. It is wrong for the Treasury to have allowed borrowers to be placed in a worse position than would otherwise have been the case.”
Having campaigned for a Mortgage Switch Guarantee, mortgage broker Trussle was pleased to hear the issue being brought up in Parliament.
Ishaan Malhi, chief executive and founder of Trussle, said: “It’s shocking that 200,000 people are trapped in an expensive mortgage and can’t remortgage to save money.
“This proposed bill will give hundreds of thousands of mortgage prisoners hope that they may soon have the ability to switch to a cheaper mortgage deal, a step in the right direction to making mortgages fairer.
“This group of people have been overlooked for too long and it’s crucial that the government step in to help by granting them an exemption to affordability rules.
“It’s worth mentioning that millions of people across the UK are currently overpaying on their mortgage because they’ve fallen onto their lender’s standard variable rate.
“However, unlike mortgage prisoners, they can switch to a deal that better suits their needs. This is why we are campaigning for a Mortgage Switch Guarantee, to make mortgage switching easier for borrowers and to ensure that lenders commit to greater transparency and address the loyalty penalty in the mortgage market.”