Minister gives hope to 'mortgage prisoners'
Treasury Minister John Glen has admitted that mortgage prisoners "need to be dealt with" at an event run by MoneySavingExpert.com at the Conservative Party Conference – providing hope for 10,000s of home owners stuck on expensive deals.
Mortgage prisoners are those who have been told they 'can't afford' to remortgage even though they want to switch to a cheaper rate. MoneySavingExpert.com has been campaigning to help them for years.
An EU rule called the Mortgage Credit Directive means – at least in the UK's interpretation – anyone getting a mortgage is subject to strict affordability checks scrutinising their incomings and outgoings, even if they already have a mortgage and are now applying for a cheaper one.
Speaking at MoneySavingExpert.com's event The Mortgage Ticking Timebomb alongside MSE founder Martin Lewis and Treasury Committee chair Nicky Morgan, Glen said there was no doubt that mortgage prisoners needed helping – the question was only "how we do that".
The minister also expressed agreement with Martin's call that an affordability check for someone with an existing mortgage – if it's at a cheaper rate and they're not borrowing more – should be, 'have you repaid and not defaulted'.
Martin warned that a significant base rate rise could lead to mass defaults and a crash in the housing market. And he called out the growing difference between the base rate and the standard variable rates customers often find themselves on.
Minister: ‘Mortgage prisoners need to be dealt with’
MoneySavingExpert has been fighting to help mortgage prisoners for several years now – Martin criticised the directive back in 2015 in his blog: I'm taking on the EU Mortgage Credit Directive – it's going to create many mortgage prisoners.
Back in May, a report from the Financial Conduct Authority (FCA) pledged to help 30,000 of these mortgage prisoners, and warned that a further 120,000 people couldn't get a cheaper deal than the one they're currently on because they have a mortgage which has been sold to a firm which isn't authorised to offer new mortgage deals.
Speaking today, Glen admitted the Government did need to do something to help mortgage prisoners.
He said: "On the mortgage prisoners issue, there's no dispute over this group needing to be dealt with, the question is how – how do we do that in terms of what regulations can we actually flex.
"The mortgage credit directive can't just be unilaterally avoided by the Government at this time."
Glen also explained how difficult he found the process of renewing his own mortgage, when he did so six months ago.
He added: "About six months ago I went through the process of renewing my mortgage and it was absolutely absurd. I was within all the criteria – I knew the criteria, I'd just become the minister – and I literally had to go through several hours of conversations and this was just to port a mortgage from one home to the same equity ratio at the new home.
"I had to go through several hours of conversations to basically get them to agree to lend the same sum of money on the same product, and a new dwelling. And I thought this was just not right.
"I think there should be more flexibility, but the challenge is always put back to me, we want to keep things stable."
Glen's comments were also echoed by Nicky Morgan, who admitted: "Mortgage prisoners are absolutely trapped through no fault of their own. We do have a duty to help them."
Martin: 'We need to change affordability tests'
Martin explained to those at the event that he believed a different approach is needed towards affordability checks for those moving onto cheaper mortgages.
He said: "Affordability checks, yes. But surely an affordability check for someone with an existing mortgage – if it's at a cheaper rate and they're not borrowing more – is, 'have you repaid and not defaulted?'
"That's an affordability test, isn't it? I think it's the best possible one you can have because it's direct proof. And we should look to see if that can work within the interpretation."
Glen signalled agreement to Martin's definition, saying "yes, yes" during its delivery.
At the end of the event, the minister added: "The tests for affordability I think need constant review."
'I am about to become a mortgage prisoner'
Among those in attendance at the event was a mortgage borrower who said she believed she was about to become a mortgage prisoner.
Speaking to the panel, she said: "I've had the same mortgage for 12 years with the same lender. I've never defaulted, never had any problems.
"This year, when I rang [my lender] the offer that they made was about £100 a month cheaper and right at the end of the conversation, when we were talking about direct debits, I said 'leave the direct debit where it is and I'll overpay by £100 a month. I've got used to paying it'.
"The lady I was speaking to said 'that would reduce the term of your mortgage and that's a material change, therefore you've now come into our affordability checks'. I said 'it's fine, just leave it as it is, I'll do manual payments', and she said, 'no, it's a one-way door – once you've come through the affordability checks, you can't back out again'.
"So I've now failed the affordability checks and my mortgage, instead of going down, has gone up by £200."
Martin told the woman to go to a mortgage broker and leave her existing lender.
Andrew Montlake, a mortgage broker from Coreco in the audience, said this was something he had seen "quite a lot".
Montlake added: "That is one of the ludicrous things we see all the time. There are people who pay their mortgage for 10, 12, 15 years – they try to change it to take advantage of rates available and they're just not being allowed to."
'Consumer revolution 2.0 is auto-switching'
As well as mortgage prisoners and affordability tests, the panel at the event, facilitated by MoneySavingExpert Head of Campaigns Kirsty Good, discussed topics ranging from auto-switching to financial education for schoolchildren.
Martin explained that he believed auto-switching, the process where a customer switches bills such as their mortgage or energy to another product or provider through a trusted third-party without them having to do it manually, was "consumer revolution 2.0".
He said: "The answer to the future for many is trusted entities doing [switching] for you. Your mortgage will finish and you'll be moved to a new rate."
On financial education there was some disagreement, with Nicky Morgan saying "it's up to all of us", rather than just teachers, to be responsible for it.
But Martin said "it could be made compulsory" in schools, like sex education.
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