Industry reacts: FCA looks to release mortgage prisoners

Jessica Nangle

October 28, 2019

The industry has reacted to a move by the Financial Conduct Authority (FCA) which aims to help ‘mortgage prisoners’ by removing barriers which stopped them from finding a cheaper mortgage deal.

This comes after feedback provided to the regulator with eligible consumers able to finance intermediary fees, product or arrangement fees through the new mortgage.

The rules, which will come into force immediately, allow lenders to use a different and more proportionate affordability assessment for customers who meet certain criterion.

These criteria include being up-to-date with payments under their existing mortgage and not looking to move house or borrow more, unless it is to finance certain fees.

Ray Boulger, senior mortgage technical manager at John Charcol, said: “These rule changes are welcome and it is important that the FCA has responded to feedback from brokers and lenders by defining “a more affordable mortgage” in a sensible way and allowed associated fees, including intermediary fees, to be added.

“However, it is important to recognise that it is optional for lenders to adopt these new rules and many of the larger lenders are likely to decide that for the limited amount of potential additional business the system changes needed to implement the flexibility now allowed will make it uneconomic to do so.

“This therefore provides a good opportunity for the smaller manual underwriting lenders, some of whom were already prepared to consider applications from these mortgage prisoners in anticipation of the FCA rule change.

“In order to manage expectations it is also important to recognise that only a minority of mortgage prisoners will be helped by these new rules.”

Christopher Woolard, executive director of strategy and competition at the FCA, stressed the importance of responsible lending and how unaffordable borrowing is a cause of “significant harm”.

The regulator also confirmed that customers of inactive lenders, also known as “zombie lenders”, and unregulated firms will have to be contacted and told that it has become simpler and easier for them to switch to another lender.

Despite Boulger’s words of caution, the industry remained optimistic.

Jameel Lalani, head of mortgages at MoneySuperMarket, said: “In almost every other market, it’s easy for people to take control of their bills and switch to another supplier or lender, so there’s no reason why this should be any different when it comes to mortgages.

“Nobody should be in a situation where they’re stuck in a mortgage arrangement they can’t get out of.

“The new rules outlined today by the FCA should make life easier for the so-called ‘mortgage prisoners’ to engage in the market, find the right product for their needs and put an end to needlessly overpaying on their home loan.

“By removing the barriers to switching, it should also drive innovation and competition amongst lenders, which should only increase consumer benefit.”

Keith Richards, chief executive of the Personal Finance Society, welcomed this “long overdue” change which potentially could deliver a “fairer treatment and better outcomes for consumers”.

Ishaan Malhi, founder and chief executive of online mortgage broker Trussle, praised the changes from the FCA as a “victory”.

He said: “It’s shocking that 200,000 people are trapped in an expensive mortgage and can’t remortgage to save money.

“Today marks a victory for the hundreds of thousands of mortgage prisoners who are trapped in an expensive mortgage and unable to switch.

“But while the FCA’s decision to grant an exemption on affordability rules is a positive change, the fight for mortgage prisoners is not over.

“It’s now down to lenders to help this under-served group by using the more proportionate affordability assessment for customers who meet certain criteria.

“This significant group of people have been overlooked for too long and it’s about time that the FCA stepped in to help them.”

Mark Gordon, director of mortgages at comparethemarket.com, said: “The FCA’s proposals are clearly intended to reduce the time and cost of switching more generally, which is a win-win for consumers.

“With many competitive fixed rate deals available on the market, the immediate introduction of these reforms is a welcome opportunity for homeowners to be more choosy when shopping around for a mortgage.”

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