Lifeline for mortgage prisoners as MSE campaign takes huge step forward
The financial watchdog is to consult on introducing new lending rules which could help free as many as 140,000 mortgage prisoners, in a huge step forward for MoneySavingExpert.com's campaign.
In a letter to the Treasury Committee – a group of MPs which scrutinises financial policy – Financial Conduct Authority (FCA) chief executive Andrew Bailey has said that the regulator wants to remove barriers that stop mortgage prisoners from moving to a cheaper deal.
Mortgage prisoners are unable to get cheaper deals with other lenders because they don't meet strict borrowing criteria, even though they'd often be paying less if they switched away from their provider.
But in his letter, Andrew Bailey says the FCA intends to move the criteria from an "absolute test to a relative test", meaning the test would check whether the new mortgage costs are more affordable than the current costs. The FCA says it will be consulting on these changes.
Martin: 'I'm delighted after all these years of campaigning something is likely to be done'
Martin Lewis, founder of MoneySavingExpert.com, said: "Finally, a welcome and sensible move. For over four years we've been saying that it's ludicrous that people are failing affordability tests because they're absurdly told they cannot afford a cheaper deal than the one they're already on.
"Affordability checks are important for first-time buyers. But for those that are remortgaging to a cheaper deal – without moving house, without borrowing more and without a change of circumstance – to be told that they cannot afford a cheaper deal is nonsense, and it means the tests are flawed.
"We've heard in the past that this is an EU regulation problem, but the EU says it's a UK interpretation problem… frankly I don't give a monkey's. This has left way over 100,000 people paying far too much for their mortgage and they're at a much higher risk of default and repossession.
"I am absolutely delighted that after all these years of campaigning, finally we're hearing that something is likely to be done about it."
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.
The FCA estimates there are 150,000 mortgage prisoners, who fall into three categories:
- 120,000 with unregulated/unauthorised lenders. These are firms that are not regulated by the FCA, so it's harder for the regulator to help people who have mortgages with them.
- 20,000 with inactive lenders. These 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.
- 10,000 whose lenders have already pledged to help. In July 2018, 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 pledged to write to some people in this situation by the end of last year, to let them know that they can switch to one of their better deals.
Who won't be helped by today's announcement?
Although today's announcement is good news for many, the proposals won't help all mortgage prisoners.
In his letter, Andrew Bailey says that the situation some borrowers are in may put them outside the "risk appetite" of lenders.
Such people may include those that:
- Are in arrears.
- Have very high loan-to-value mortgages.
- Have considerable debts.
- Have mortgages in negative equity – a situation when the value of your home is less than the amount you have outstanding on your mortgage.
'It's a step in the right direction'
Jayne Emsley, from Pontefract in West Yorkshire, is a mortgage prisoner who can't remortgage because she's now with a firm that doesn't offer personal mortgages – and she is losing £100s a year because of it.
Jayne took out a mortgage with Northern Rock over a decade ago, but after it collapsed, she was moved to Landmark Mortgages on a standard variable rate, which is now 4.39%. Jayne says she could likely get a deal with another provider which is more than £1,000/year cheaper – but because she is self-employed and self-certifies her income, she has been unable to.
On hearing today's announcement, Jayne said: "It's a really good step in the right direction. I know it's only a consultation at the moment, but ideally we'd get the same deal as are offered on the high street.
"It's been going on for so long, and there's been a lot of ifs and buts, so I've got a little cynical. It'd make such a huge difference to me if I could get on a decent rate. I hope it's the news that it sounds like.
"Thank God they're listening though, I'm glad it's being looked at, and like I say, it's a massive step in the right direction."
What happens next?
There's no clear timeline on how long the change will take to come into place, although Nicky Morgan MP, chair of the Treasury Committee, has urged it to happen "swiftly".
The FCA will now consult with key stakeholders, such as mortgage lenders, on any proposed changes before they come into effect.
It says it will also need to find "willingness" from the firms it regulates to take on mortgage prisoners from the firms it does not.
It has already held one round-table discussion with industry figures, and says it has seen some appetite among firms.
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?'.