FCA finally acts to free tens of thousands of mortgage prisoners

The Financial Conduct Authority (FCA) has proposed changes to its lending rules to help free tens of thousands of ‘mortgage prisoners’. The worst affected are borrowers who are currently stuck with an inactive or unregulated lender – often paying higher mortgage rates – and are unable to switch to a cheaper deal with an alternative provider.

MoneySavingExpert.com (MSE) has been campaigning to free mortgage prisoners since 2015. Today’s announcement by the FCA is a continuation of campaign work done by MSE to assess the scale of the problem and find a solution to free those locked into expensive mortgages. Please see the notes to editors for the timeline of our work.

Martin Lewis, founder of MoneySavingExpert.com, said: “This major change is exactly what we have been calling for, for over four years. The absurd current rules have meant existing mortgage customers who are just trying to switch to a new deal have been flabbergasted to be told 'you can't afford a cheaper mortgage.’ That risks people defaulting and ultimately being repossessed, and for many, effectively means the remortgage market is broken.

“I strongly support affordability tests for first-time buyers – we don’t want people getting into debt that they can’t afford to repay. This involves stress tests to see not only if they can afford the mortgage, but if they could do so if interest rates rose to 6% or 7%. Yet to use that same test for those that are remortgaging without moving house, without borrowing more and without change of circumstance, is nonsensical.

“And after years of the regulator, politicians, the Treasury and indeed the EU (as part of this is due to the Mortgage Credit Directive) telling me they agree with me, but there’s nothing that they can do – I’m delighted finally there’s to be some concrete change.

“In a nutshell the FCA is supporting our proposals. It is suggesting that the affordability test be changed so that as long as you’ve been meeting your mortgage repayments for a year, then provided the new deal you’re applying for is cheaper – in other words, it has lower interest, and the repayments are lower – then you will be deemed to have passed the affordability test.

“We hope this proposal is enacted. It will still need lenders to play ball, but I’m hopeful that will happen, because they’ve often told us they find the current rules frustrating too. We need to make sure those with existing debts can engage with a competitive market, releasing the pressure valve on their finances. If we get this right it’s a triple win: it’s better for the individual, the economy and lenders.”

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Notes to editors

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.
  • In 2016, then-Chancellor George Osborne wrote to mortgage lenders following a meeting with Martin about the plight of mortgage prisoners. He confirmed that lenders don’t have to carry out affordability assessments for their existing customers seeking a product transfer.
    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?'.
  • In January 2019, in a huge step forward for MSE's campaign, the FCA said it will consult on introducing new rules to free 140,000 mortgage prisoners.