Mortgage Prisoners? What on earth is a mortgage prisoner.
Defining a mortgage prisoner depends upon who you talk to but if we had to narrow it down to an industry description, then who better to decide what one is than the FCA (Financial Conduct Authority) who regulate the mortgage industry. We will explore the definition in a moment, but not all mortgage prisoners may be as trapped as they think!
In essence, a mortgage prisoner is someone who may potentially be stuck with a mortgage that they can’t get out of by remortgaging (switching to another mortgage or another lender), or, who has an interest-only deal and no way of paying back the loan.
The FCA conducted a market study on this subject and in March of 2019 issued a final report on the topic outlining its findings, click here to read the full report. In the wake of the report, the FCA estimated that around 140,000 borrowers were unable to switch to a better deal even though they were up to date with their payments. To help fix this, they changed their rules on 31st October 2019 to allow lenders to assess affordability based on a borrower’s track record of making mortgage payments as opposed to identifying adequate sources of income.
Of course, playing devil’s advocate from an advisers point of view, it does raise the question of “if you cannot identify the client’s income as being adequate to service their existing loan, then how can you recommend a solution? If the client does not have adequate income, then how are they affording their mortgage payment?”
As part of the research for the report, they also collected data to understand more about borrowers who have a mortgage held by an unregulated firm and looked at the data that they collect from regulated firms.
Key findings from the report as quoted by the FCA: -
- Around 250,000 people are in closed mortgage books or have mortgages owned by firms that are not regulated by us.
- However, our research shows around 170,000 of these borrowers are up to date with payments and would be eligible to switch because of our new rules.
- Over half of the group that are eligible are paying interest of 3.5% or less. 39% are paying an interest rate of less than 3.0%.
- Of those eligible to switch, 40,000 have less than £50,000 to repay, many of whom have less than 10 years remaining on their mortgage.
- Both these sets of borrowers may find limited value in switching depending on the deals we find.
- We estimate around 14,000 eligible mortgage prisoners should be both likely to meet commercial lending criteria and stand to make a meaningful saving.
- This aligns with the estimates published in our Consultation Paper on changes to the responsible lending rules in October 2019.
How did mortgage prisoners come to be? Essentially mortgage prisoners came to be following the credit crunch in 2008 which saw a lot of lenders leave the market place taking their mortgage book with them and so consumers were stuck in a product that was no longer available with lenders that were no longer operating. Legislation took care of the rest and with the advent of the Mortgage Market Review in 2014, the rules pertaining to affordability changed and so this too helped encapsulate consumers in products that they have little hope of escaping from, until now.
There is a dedicated page on the FCA website regarding Understanding Mortgage Prisoners which was last updated in January 2020. Click here to view this page.
So, what is new for Mortgage Prisoners and is there any light at the end of the tunnel for this population? Apart from the FCA changing the rules governing this group and their ability to switch products or lenders, not very much. There are only a handful of lenders who actually subscribe to changing the way they deal with these clients and those that we know of so far, have actually made quite a commitment to this group and should be applauded for having done so.
The Halifax and Nat West, for example, now have a bespoke process for such cases and are prepared to consider cases under the new guidelines. Santander began accepting applications from 2nd November 2020 for mortgage prisoner cases and West Brom Building Society implemented affordability rules in September 2020. However, changing the rules to allow lenders to regard applications for remortgage differently is one thing and getting lenders to subscribe to the initiative is another. If there is to be a concerted effort to change the plight of this demographic, then it’s possible that an instruction to accommodate will be required rather than a polite request to assist.
In a call to action, the Financial Conduct Authority (FCA) has issued a plea for mortgage intermediaries who are willing to help mortgage prisoners find a better deal. They would be expected to help mortgage prisoners identify and move to an active lender where possible, or signpost them to additional support such as debt advice.
For this purpose, a list of intermediaries has been compiled and is available to view on the Money Advice Service website, although customers will also be able to approach intermediaries who do not appear on this list.
According to the All Party Parliamentary Group on Mortgage Prisoners, mortgage prisoners “are vulnerable and could be stuck with a lender which will exploit them by keeping them paying a high interest rate, not give them any new deals or fixed rates and not show them any flexibility”.
The FCA said mortgage intermediaries had a “key role to play” in supporting mortgage prisoners, from learning of the option to switch, to being able to apply for a new product.
Charles Derby Mortgage Bureau Ltd are fully committed to the plight of mortgage prisoners as described by the FCA and any other body for that matter. We are a customer centric mortgage advisory business and completely focused on doing what is ultimately right for the client and are named on the first page of the register.
If you would like to talk to one of our professionally accredited mortgage advisers, then call us on 0330 094 5476 and state that you consider yourself to be a mortgage prisoner. We will allocate an adviser to your case who will contact you as soon as they become available.