Helping mortgage prisoners is 'a matter of urgency' says FCA

Speaking at the UK Finance Annual Mortgage Conference in London this morning, Christopher Woolard of the Financial Conduct Authority (FCA) said the mortgage prisoner problem "will require creativity" from the regulator to solve it.

The announcement comes weeks after Treasury Minister John Glen admitted that mortgage prisoners "need to be dealt with" at an event run by MoneySavingExpert.com at the Conservative Party Conference.

Who are mortgage prisoners?

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.

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.

What is being done for mortgage prisoners now?

In July, 59 lenders which are authorised by the financial regulator to offer mortgages agreed to help existing borrowers on reversion rates – the rate your mortgage goes back to at the end of any incentive or fixed-rate period – who are up-to-date with repayments but, because of stricter affordability criteria, are unable to move to a cheaper deal provided by their lender.

The lenders have pledged to write to anyone in this situation by the end of 2018 if they haven't already done so, to let them know that they can switch to one of their better deals.

But the commitment did nothing to help many tens of thousands of mortgage prisoners who are on deals with inactive lenders and unregulated mortgage owners.

• Inactive lenders are firms that are able to offer mortgages, but no longer do – so customers who have mortgages with them and can't pass an affordability check with another lender can't move to a better deal.

• Unregulated/unauthorised lenders are firms that are not regulated by the FCA, so it's harder for the regulator to help people who have mortgages with them.

Help for mortgage prisoners needed as 'a matter of urgency'

Speaking at the industry conference, Mr Woolard said: "The voluntary agreement agreed earlier this year allows customers of active lenders to switch if they meet standard criteria. We believe this is an important step forward. But the devil is in the detail. We are keen to see what impact this agreement has, and to see all lenders able to participate doing so. There is a potential group of at least 10,000 customers this may help.

"The question of customers of inactive or unregulated lenders is a harder nut to crack. We have identified about 20,000 customers in the closed books of authorised lenders, and a further 120,000 customers whose mortgages are held by firms that are not authorised, who may be able to benefit from switching.

"We have put the challenge to industry to help these consumers and are leading an industry working group to deliver on that as a matter of urgency. This is a complex issue, one that will require creativity from us and a coordinated effort from you. But the objective is clear – to see if, between us, we can help these customers to benefit from being able to switch to another lender."

He later added: "We have the answer for authorised firms. I want to see an answer in the unauthorised space. If need be, we will also discuss with Government whether a change in our regulatory perimeter or any other Government support is needed to protect those customers where mortgages are transferred to the unregulated sector. It simply isn't an acceptable argument to hide behind the intricacies of our regulatory perimeter when real families are involved."

MSE's mortgage prisoner campaign timeline

• In 2015 Martin met key figures in the EU, the Treasury and the FCA, which are the organisations responsible for UK mortgage regulations. He attempted to organise a summit between them, for them to collectively work out who was responsible for the situation, and how it could be fixed.

  Unfortunately, the summit didn't take place.

• In 2016, then-Chancellor George Osborne wrote to mortgage lenders following a meeting with Martin about the plight of mortgage prisoners.

  However, Martin said the Chancellor's letter only addressed "a fraction of the problem".

• In May 2018, the FCA found 150,000 consumers in the UK were mortgage prisoners. MSE contributed to the regulator's discovery by suggesting and helping facilitate a survey of mortgage brokers. The survey backed up the regulator's findings from analysing mortgage data, and the FCA thanked MSE for its contribution.

  The regulator said it was able to help 30,000 of the mortgage prisoners it identified – whose lenders the FCA could force to help their 'imprisoned' consumers if needed. But the other 120,000 'prisoners' have had their mortgages bought by firms who aren't authorised to lend, and so the FCA has no power to make them do anything.

• In October 2018, Treasury Minister John Glen admitted that mortgage prisoners "need to be dealt with" at an event run by MoneySavingExpert.com at the Conservative Party Conference.

  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?'.