Barriers removed for some mortgage prisoners – but Martin says it will only 'unchain a tiny fraction'
The financial regulator has removed some barriers that stop mortgage prisoners from finding a cheaper deal – though many will still be left trapped.
Currently, anyone applying for a mortgage is subject to strict affordability checks, but the Financial Conduct Authority (FCA) says that lenders can now relax these tests for new customers who meet certain criteria, such as being up-to-date with payments under their existing mortgage for at least 12 months, and not looking to move house or borrow more.
This means some mortgage prisoners will now be able to switch to a new lender more easily. Previously, only a mortgage holder's existing lender would have been able to relax the strict affordability rules.
The FCA also says that customers of inactive lenders and firms not authorised for mortgage lending will have to be contacted, and told that it has become simpler and easier for them to switch to another lender.
The regulator estimates between 2,000 and 14,000 mortgage holders will be able to switch to a better deal as a result of the rule changes, though this still leaves more than 100,000 mortgage prisoners on expensive tariffs.
Martin: 'This move will only unchain a tiny fraction of the UK's mortgage prisoners'
Martin Lewis, founder of MoneySavingExpert.com, said: "With its existing powers the regulator can only deliver a toothless response. By its own admission this move will only unchain a tiny fraction of the UK's mortgage prisoners. Yet, as we've been campaigning on this for years, any action is still welcome – and thousands released from mortgage misery is better than nothing.
"More must be done for the 100,000+ of others who are stuck in this financial trap. Our own research shows that every day mortgage prisoners are pushed closer to their financial and mental limits – we've scores of testaments from people whose lives, as well as their incomes, are being destroyed by this fiscal anchor.
"Mortgage prisoners are victims of irresponsible pre-crisis lending. As a result of the banks' reckless behaviour, they were often given mortgages which were too large – sometimes up to 125% of their income. Post-crisis, when lending rules tightened up, they were left out in the cold, unable to benefit from competition and therefore exposed to a decade of expensive standard variable rates – the type most mortgage customers want to run from.
"Some were sold on, by the state, to unregulated and inactive lenders as a financial asset. The damage this has done to their finances means many of these consumers are now unattractive to most lenders and prevented from accessing the most competitive rates – and the FCA has no way to force or incentivise firms to take them on.
"It is now time for the Government to act. We've waited for the regulator's best attempt, and unfortunately it can't do enough. The Treasury bailed out the banks to protect them from the effects irresponsible lending had on the financial sector – it makes no sense that innocent home owners are not being afforded the same mercy. It's time for it to bring in some big carrots – and if those don't work, possibly some big sticks – to have any hope of protecting this group of consumers."
What do the changes mean?
An EU rule called the Mortgage Credit Directive means – at least in the UK's interpretation of it – 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.
But under the new rules introduced by the FCA, mortgage lenders can choose to carry out what's called a 'modified affordability assessment' when the customer:
- has a current mortgage.
- is up to date with their mortgage payments for at least 12 months.
- does not want to borrow more (other than to finance any relevant product, arrangement or intermediary fee for that mortgage).
- is looking to switch to a new mortgage deal on their current property.
The modified affordability assessment allows the firm to waive several of the checks to incomings and outgoings that would usually be applied.
What does the FCA say?
Christopher Woolard, executive director of strategy and competition at the FCA, said: "Responsible lending is hugely important, and unaffordable borrowing is a cause of significant harm. Mortgage prisoners are often stuck on more expensive mortgages. We are removing barriers to switching in our rules and we would like to see firms make changes to their own processes quickly in order that customers can benefit as soon as possible.
"We are also taking steps to help those who have mortgages with inactive lenders or unregulated entities to ensure that they are aware that they may now be able to switch and save money."
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