Rule change to free mortgage prisoners could happen 'fairly quickly'
There is "no reason to hang around" on introducing a new rule that will free up to 140,000 mortgage prisoners, the head of the financial watchdog told MPs today.
The Financial Conduct Authority (FCA) announced last week it will consult on new lending rules that could help those stuck on expensive mortgages get cheaper deals, in a huge step forward for MoneySavingExpert.com's campaign. Under the plans, affordability checks will be relaxed and changed from an "absolute test to a relative test".
FCA chief executive Andrew Bailey today told the Treasury Committee – a group of MPs that scrutinises Government policy – that its consultation on the rule change should take just 12 weeks and that if there was a positive response, change could happen "fairly quickly".
He added: "The thing that normally takes time is when we're asking the firms to change systems and I don't think this really involves that."
Who are mortgage prisoners?
So-called 'mortgage prisoners' are people 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.
Most affected by the problem find themselves trapped because their current mortgage provider can't offer them a new mortgage, and so they can't be offered a mortgage without an affordability check as an existing customer. The FCA estimates there are 150,000 mortgage prisoners in total, who fall into three categories:
- 120,000 with unregulated/unauthorised lenders. These firms aren't regulated by the FCA, so can't offer new mortgages.
- 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 are with lenders which do offer mortgages, but have been applying strict affordability criteria even to existing customers. This group are already being helped – last July, 59 lenders pledged to write to anyone in this situation and let them know they can switch to a cheaper deal with the same provider without an affordability check.
The FCA hopes the 140,000 people in the first two categories will be helped by relaxing the rules on affordability checks, as they will be able to apply for a cheaper deal with another mortgage provider.
What happens next?
There's no clear timeline on how long the changes will take to come into place. But the FCA will now consult with key stakeholders, such as mortgage lenders, on the proposed changes and this is likely to take 12 weeks.
The regulator said last week it would need to find "willingness" from the companies it regulates to take on mortgage prisoners from the firms it does not.
But the signs seem good. Andrew Bailey said to MPs today that firms had "a lot of goodwill" and a "desire to solve" the issue.
Those in long-term arrears 'won't be helped'
Although last week's announcement was good news for many, the proposals won't help all mortgage prisoners.
In his letter to MPs announcing the consultation last week, Mr Bailey said that the situation some borrowers are in may put them outside the "risk appetite" of lenders. And he added at the meeting this morning that those in "long-term arrears" were likely to be among those that won't benefit.
He couldn't provide a figure for how many people were in this situation, but promised to come back to the committee with the numbers.