Mortgage prisoner review launched amid concerns even MORE homeowners could be trapped on expensive rates
More homeowners than previously thought could be trapped on expensive mortgage rates and unable to switch, the Financial Conduct Authority (FCA) has admitted. It comes as the regulator has launched a new review into mortgage prisoners who are unable to remortgage to a cheaper deal with another lender because they don't meet strict borrowing criteria.
Announcing the start of the review this month, the FCA said its earlier assumptions "led to a low estimate" of the number of people who have mortgages with inactive firms and who are unable to switch, despite being up to date with payments. Current figures suggest there are some 250,000 mortgage prisoners in the UK.
Therefore, as part of its review, the FCA will "take a fresh look" at its assumptions, including its criteria for whether an individual can switch. It adds that these updated assumptions, alongside more recent data and a change in economic conditions, are "likely to lead to an increase in [the] estimated number of mortgage prisoners".
MoneySavingExpert.com (MSE) and its founder Martin Lewis have campaigned for years for more help for those who are are unable to remortgage. Earlier this year, Chancellor Rishi Sunak agreed during an interview with Martin that there was a need to "make sure we have workable solutions" to help all mortgage prisoners, while economic secretary to the Treasury, John Glen, announced that the Government would work with the FCA to review existing data on mortgage prisoners.
The recent rule changes for mortgage prisoners will also be reviewed
As part of the review, the FCA will also assess the impact of its new, less stringent affordability rules, which came into force for some mortgage prisoners last year. It will consider how firms have implemented the rules and whether, in its view, any barriers to switching remain for borrowers who have mortgages with inactive lenders.
The review is expected to last until October, with the outcome presented to Parliament by the end of November.
It comes after MPs rejected a proposed amendment to the Financial Services Bill in April, which would have seen interest rates capped for certain mortgage prisoners.
Mortgage prisoners are unable to switch to a cheaper mortgage
Mortgage prisoners are borrowers who were unfairly left behind after the 2008 financial crash – some are on home loans with inactive lenders or unregulated firms that don't offer new mortgages, while others are unable to switch due to tough new mortgage affordability criteria brought in as a result of the crisis. One borrower we spoke to last year, for example, was paying 4.59% interest and had paid £10,000s more than he needed to.
For years, MSE and Martin – as well as others, such as the UK Mortgage Prisoners (UKMP) group – have been calling for help for mortgage prisoners, telling politicians and regulators that people who were meeting current repayments, but wanted to shift to a lower rate, were nonsensically being rejected and told 'you can't afford a cheaper deal'. For more information, see our full Mortgage Prisoners guide.