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Law could be changed to help mortgage prisoners

Law could be changed to help mortgage prisoners

The Government could make changes to the law which is often blamed for creating mortgage prisoners, Treasury Minister John Glen has said in a letter published today.

In a letter to Treasury Committee chair Nicky Morgan MP, Glen said the Government is prepared to "explore legislative solutions" to help mortgage prisoners – those who are unable to access the competitive mortgage market.

It follows Glen's appearance before the Treasury Committee, which is a cross-party group of MPs that holds the Treasury to account, during which he was questioned about mortgage prisoners.

Glen promised to write to the committee to set out the Government's position after this.

We've been campaigning for years to help mortgage prisoners and MoneySavingExpert.com founder Martin Lewis warned about the issue at MSE's event The Mortgage Ticking Timebomb at the Conservative Party Conference last month, where both Glen and Morgan spoke.

Who are mortgage prisoners?

Mortgage prisoners are those who've been told they 'can't afford' to remortgage, even though they are keeping up with their payments and want to switch to a CHEAPER rate.

An EU rule called the Mortgage Credit Directive means – at least in the UK's interpretation – anyone applying for a mortgage is subject to strict affordability checks scrutinising their income and outgoings, even if they already have a mortgage and are now applying for a cheaper one.

Back in May, a report from the Financial Conduct Authority (FCA) pledged to help 30,000 of these mortgage prisoners who are with lenders that are authorised to offer mortgage products. But it also estimated that there were 120,000 more people who 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 deals.

What does Glen's letter say?

When the UK leaves the EU next March, the mortgage directive will be written into UK law, but for the first time Glen has now explicitly said the Government is considering amending it.

In the letter, Glen says: "I agree that more still needs to be done to help those who have mortgages with inactive lenders. 

"I have made clear to my officials, as I set out in my responses to the Committee on 30 October, that exploring solutions for these customers is a top priority.

"That is why officials are working closely with the FCA, who are exploring what more could be done as part of their Mortgage Market Study. It is also why if necessary that Government is prepared, once it is able to amend the repatriated Mortgage Credit Directive, to explore legislative solutions."

What does Nicky Morgan MP say?

Speaking about the letter, Treasury Committee chair Nicky Morgan MP said: "The Economic Secretary has acknowledged that mortgage prisoners are in a difficult and stressful situation, and the FCA has said that helping mortgage prisoners is a matter of urgency.

"Time is clearly of the essence. People are trapped repaying their mortgages on a far higher interest rate than is necessary through, as the Economic Secretary said, no fault of their own.

"Whilst the FCA has said it can help a few thousand mortgage prisoners – those with authorised lenders – this does nothing to help the 140,000 customers with inactive lenders."

What is being done for mortgage prisoners already?

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 some people 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. People with these lenders are the ones the law changes Glen mentions could help.

  • 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.

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?'.