Mortgage lenders have agreed a set of common standards in helping homeowners stuck on reversion rates, working with the Financial Conduct Authority.
In total 59 lenders, representing 93% of the market, agreed to help existing borrowers on reversion rates who are up-to-date with repayments but, because of stricter affordability criteria, are ineligible to move to an alternative product provided by their lender.
Trade bodies UK Finance, the Building Societies Association and the Intermediary Mortgage Lenders Association have all made a commitment to help these customers.
Jackie Bennett, director of mortgages, UK Finance, said: “Lenders have responded to the FCA’s challenge and made a voluntary commitment to help these longstanding borrowers, offering them the ability to switch to an alternative product if they meet the agreed standard criteria – a potential solution that covers 93% of the residential mortgage market.
“We expect more lenders to participate in the coming months. Furthermore, we will be working closely with the FCA and active lenders to see what might be possible for customers of inactive and unregulated lenders.
“Participating lenders will be contacting qualifying homeowners so for now, customers don’t need to do anything but wait to hear from their mortgage provider.”
In its Mortgages Market Study interim report, the FCA identified a relatively small proportion of borrowers who are on a reversion rate, are up-to-date with repayments and would benefit from switching to a new deal but cannot do so.
This cross-industry commitment applies only to customers of those lenders that are able to offer alternative products to their existing borrowers. A number of authorised lenders already offer their existing customers the opportunity to switch.
However, as required, lenders have undertaken to write to any qualifying borrowers by the end of 2018 if they haven’t already done so. Customers do not need to take any action and will not be obliged to switch if they do not wish to.
To qualify, the following standard principle-based criteria will apply:
Customers will need to be first charge owner-occupiers, be existing borrowers of an active lender, be on a reversion rate, be looking for a like-for-like mortgage and be up to date with payments. They must have a minimum remaining term of two years, have a minimum outstanding loan amount of £10,000, and be able to benefit from switching.
Paul Broadhead, head of mortgage and housing policy at the BSA, said: “It is pleasing that the FCA recognises that the mortgage market works well for the vast majority of borrowers.
“By signing up to this voluntary agreement lenders will ensure that existing borrowers are not disadvantaged by the changes to mortgage regulation since the financial crisis.
“The agreement formalises the actions that many societies have been taking and provides clarity and confidence for all affected borrowers.”
Kate Davies, executive director of the IMLA, said: “The FCA’s Interim Report on its Mortgage Market Study acknowledged that the mortgage market is generally working well for the majority of borrowers.
“It noted that some improvements could be made for the minority groups who find themselves unable to switch products, as a result of regulatory changes brought into effect since they took out their loans.
“This initiative will help a number of those borrowers, and further work is planned to address the needs of others.”