BSA: Government must act now to help mortgage prisoners

Michael Lloyd

June 26, 2019

The Building Societies Association (BSA) has urged the government to act now to ensure that mortgage prisoners are subject to the same regulatory protections as they had when they first took out their mortgage.

The Financial Conduct Authority has published a consultation paper on allowing moving affordability assessments to a ‘relative test’ to ensure people who aren’t borrowing more can switch to a mortgage that’s more affordable than what they currently have.

Paul Broadhead (pictured) head of mortgage and housing policy at the BSA, said the proposals from the FCA are a positive step forward for these borrowers, but current information indicates that only a minority will be able to switch lender as a result and the FCA and government needs to do more to help these borrowers.

Broadhead said: “At this stage I think it is important to be honest about the challenges and the reality that it will take some time to work through to a sensible conclusion.

“We recognise the importance of helping those mortgage borrowers that do not have the option to move to a better deal because their mortgage has been sold to an unregulated purchaser.

“However, information about these borrowers’ circumstances remains sketchy and we are therefore working blind.

“The BSA, as well as the FCA, recognises that these borrowers have fewer safeguards than those with regulated lenders and this needs to change.”

He added: “The government must act now to ensure that these borrowers are subject to the same regulatory protections as they were when they first took out their mortgage.

“Plus, I call on the FCA and the government to do all that they can to ensure that the sale of any mortgage book from now on does not perpetuate this issue.

“Building societies will participate actively in the cross-industry implementation group that the FCA is setting up to move things forward. I would love this issue to be simple and straightforward, but it isn’t.”

The FCA has estimated that the changes proposed will only assist between 2,000 and 14,000 borrowers out of 500,000.

Broadhead said the challenge is that virtually no information about the mortgages, the borrowers or the interest rates being charged in these books is currently available. Data to profile these mortgages is essential for the process to move forward and lenders to assess what is possible.

He said it’s essential that the FCA and the government take action urgently to ensure that consumers whose mortgage is sold to an unregulated lender have robust consumer protections extending to interest rates.

The FCA has agreed that mortgage prisoners do not have the required consumer protections, so Broadhead argued action must be taken to ensure that they do and that such sales do not lead to more mortgage prisoners.

The BSA wants the regulatory perimeter to extend to include these customers and for every mortgage book sale to have a regulated legal title holder to ensure that FCA rules, including the requirement to treat customers fairly, apply.

StepChange Debt Charity – including StepChange Financial Solutions, the charity’s mortgage arm, also responded to the FCA.

It supports the main proposals from the FCA but said much more needs to be done to address the plight of those trapped in expensive mortgages with inactive or unregulated lenders.

Peter Tutton, StepChange head of policy, added: “The FCA’s principle of making it easier for mortgage prisoners to switch is great, but it won’t work in practice for some of those in the greatest need of help.

“If people are on ‘closed books’ with inactive or unregulated lenders and fall outside other lenders’ risk appetite, they don’t qualify.

“Given that these types of trapped customers are likely to be those who could benefit most from lower costs, we think greater intervention is justified, even if further legislation is needed to achieve it.”


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