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FCA publishes Mortgage Prisoner Review

Jessica Bird

November 29, 2021

mortgage prisoner

The Financial Conduct Authority (FCA) has released its Mortgage Prisoner Review, which includes key data in order to help government consider practical solutions to help these borrowers.

The report outlined the loan and borrower characteristics of the wider population of 195,000 mortgages in closed books with inactive firms.

It also included the FCA’s estimate of the number of these borrowers who can and cannot switch, and the number of mortgage prisoners.

Of the 195,000 borrowers who have mortgages in closed books with inactive firms, the FCA estimate that there are 66,000 who may be able to switch.

Where borrowers have not yet tried to switch, the FCA noted that consumer organisations or a mortgage intermediary might be able to help them assess whether they can save money, or otherwise benefit, by switching.

The regulator has put together some case studies that aim to help in this situation.

Among the 195,000, there were found to be an estimated 30,000 who cannot switch, but were also unlikely to benefit from switching.

These were individuals who are up to date with payments but cannot switch because of their loan or borrower characteristics, but whose interest rate means they would be unlikely to save money from switching.

There were found to be 47,000 who were classed as mortgage prisoners.

Despite being up to date with payments, these individuals cannot switch when it might benefit them to do so, because their loan or borrower characteristics were outside current lender appetite.

There were 34,000 in payment shortfall, and 18,000 near term; these borrowers would not be able to switch to a new deal, even if they were with an active lender.

The FCA also reviewed the effectiveness of its regulatory interventions to remove regulatory barriers to switching.

It found that demand from borrowers and supply from lenders has been low; a small number of borrowers have been able to switch from an inactive lender to a new deal with an active lender.

The FCA said it encourages lenders to consider if they can amend their criteria to lend to mortgage prisoners who are close to their risk appetite.

The regulator added that other mortgage prisoners – who continue to lie outside the risk appetite of lenders – might be able to take steps, with the help of consumer organisations or a debt advice charity, to improve their chances of switching to a better deal in the longer term.

The FCA aims to will continue to support the government and industry to find practical solutions to the issue, focusing on those areas in the market where it has identified the greatest harm, which could affect mortgage prisoners and other borrowers.

In particular, the FCA said it will focus on ensuring firms provide all mortgage borrowers with support when they get into financial difficulty, further understanding the issues facing borrowers with interest-only or part repayment mortgages, and supervising and enforcing its guidance for firms on the fair treatment of vulnerable customers, to help ensure fair outcomes for customers with characteristics of vulnerability.

Gemma Harle, managing director of Quilter Financial Planning, said: “Today’s FCA review into mortgage prisoners reveals that there around 47,000 people who are unable to switch to a better mortgage deal even though they would benefit from switching and would be paying less per month than they currently do.

“For some time now inflation has been increasing and it is heavily touted that at the next Monetary Policy Committee meeting the Bank of England would announce an interest rate hike.

“While the emergence of the new Omicron variant might mean that this decision is pushed back, at some point in the not-too-distant future rates are likely to increase.

“When they do, mortgage prisoners are often the borrowers hit hardest as they have no means of moving to cheaper mortgage deals and have to stick with their inactive lender’s standard variable rate leaving them with no control of potentially spiralling mortgage repayment costs.

“The FCA rightly highlights in the review that the rules it has put in place to help this group can only be effective if lenders are willing to apply the new assessment and offer a product for mortgage prisoners to allow them to switch.

“In the current economic environment, lenders are understandably cautious but that largely leaves the problem unsolved, with mortgage prisoners left in limbo.

“Our mortgage network supported the FCA’s call for mortgage intermediaries to help mortgage prisoners back in July 2020 but without lender support and a proliferation of mortgage products aimed at these customers, it is going to be difficult to move these people into more suitable products even with financial advice.

“As intermediaries we are committed to helping this type of customer, but it requires solutions from the whole industry rather than just one segment of it.

“We hope that HM Treasury takes the insights from this review and does what’s necessary to find practical and proportionate solution that can be help the thousands of affected borrowers.”


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