First mortgage prisoners FREED under new affordability rules after MSE campaign
- Mortgage prisoner released after more than a decade sees payments halved, saving £500/month
- Martin Lewis: Finally we’re ending ‘you can’t afford a cheaper deal’ rejections… but it’s no silver bullet
Mortgage prisoners (1) who've been stuck overpaying for years are starting to escape to much cheaper deals thanks to new affordability rules, MoneySavingExpert.com (MSE) can reveal. One of the first homeowners to be freed has told the UK’s biggest consumer website, which campaigned for this change, that he's saving almost £500/month as a result.
Last year the regulator, the Financial Conduct Authority (FCA), introduced new rules which allow lenders to use modified affordability assessments (2) for mortgage prisoners who meet certain criteria – something MSE has been instrumental in campaigning for. Four lenders (3) have now adopted these modified assessments, and the first – West Brom Building Society – has revealed it's now completed transfers for "a handful" of mortgage prisoners.
One of the first to be freed is Maurice Latimer, who is 76 and from Milton Keynes. Maurice took out an interest-only mortgage with Northern Rock in 2001. When Northern Rock collapsed, his mortgage was sold on to a firm called Cerberus. He then struggled to get another, partly because his and his wife's joint income was too low to pass some affordability checks – even for cheaper mortgages than the one he was on – and partly as he would turn 65 before the end of his term.
Transferring to a West Brom mortgage earlier this month slashed his interest rate from 4.59% to just 1.84%, on a two-year fixed-rate interest-only deal – halving his payments from £886 to just £401 a month overnight.
Maurice said: "For years, I just got letters saying what was happening by whoever was in charge of my mortgage and I basically had no say – I was passed round like a parcel. I'd tried to switch deals before, but I knew it was a waste of time because of the strict affordability checks. I couldn’t get anything until West Brom came along.
"Before this saving for me and my wife, the freedom to do what we wanted with our money was gone. I reckon I've paid £10,000s more than I should have, and it's nothing to do with me – it's not my fault at all."
However Maurice said that while he's relieved to have moved to a new deal, more intervention is needed to help many of those stuck on expensive deals. The FCA estimated the new rules would only help up to 14,000 of some 250,000 trapped – but the hope was that they would allow lenders to let more people switch.
"Banks and building societies can do what they can to help – as West Brom has done – but it's a sticking plaster", Maurice said. "There needs to be big change and the Treasury needs to face up to the problem."
Martin Lewis, founder of MoneySavingExpert.com, said: "Maurice’s tale brought a big smile to my face. For years we pounded at the doors of politicians and regulators to tell them that remortgaging affordability criteria were simply illogical and unfair. These meant some people who were meeting current repayments, but wanted to shift to a lower rate, were nonsensically having to be rejected and told ‘you can’t afford a cheaper deal’.
"Finally in 2019, the regulator changed the rules so lenders no longer needed to operate this way. Most sadly haven’t changed yet, but this West Brom mortgage was among the first, launching a few months ago, and Maurice’s story viscerally shows the impact. Of course, cheaper rates mean there’s less risk of default for lenders too.
"While this is good news, it’s no silver bullet. This is just one small change needed to help the 250,000 mortgage prisoners. It won’t help most. These prisoners are the forgotten victims of the last financial crash. While the Government bailed out the banks, mortgage prisoners were unfairly left behind in financial misery.
"Much more still needs to be done. In the last fortnight, the London School of Economics published research that we commissioned, which shows that to all intents and purposes, there is little else the regulator can do. Only the Government can, and should, step in now to free the rest. In it, there are eight main policy recommendations to improve things. With coronavirus tearing apart people’s finances, it has never been more urgent – if the Treasury doesn’t act, the situation is so devastating for people’s mental health, I worry lives will be lost."
Notes to editors
(1) Mortgage prisoners are those who are unable to get cheaper deals with lenders because they don’t meet strict borrowing criteria brought in after the 2008 financial crash, even though they’d often pay less if they switched.
(2) Under the new rules, lenders can use a 'modified affordability assessment' when dealing with mortgage applications, so they don't need to apply income and spending assessments and crucially don't need to consider the effect of possible future interest-rate rises – known as 'stress testing' (this normally involves lenders checking to see if borrowers could afford repayments in the event interest rates jumped to 6-7%, rather than just making sure borrowers can afford the repayments they'll actually pay.)
(3) While initially the FCA said there was "little desire" from lenders to adopt the new rules, in September, West Brom became the first to start using the modified affordability assessment. Since then, Halifax, Natwest and Santander have followed suit – though in some cases deals may be only available via a broker.