CITY regulator the Financial Conduct Authority (FCA) has updated the rules mortgage providers must follow when assessing potential customers’ suitability in a move designed to bring more choice to so-called mortgage prisoners.
Mortgage prisoners are those who cannot switch their product to a new provider because they do not meet their affordability criteria, leaving them trapped paying variable rates that can be significantly higher than the kind of fixed-rate deals typically offered to new customers.
Having consulted on the issue earlier this year, the FCA has put in place new rules that will allow lenders to use different types of affordability criteria, such as being up-to-date with payments under an existing mortgage and not looking to move house.
It will also require customers of inactive lenders and firms not authorised for mortgage lending to be contacted and told that it has become simpler and easier for them to switch to another lender.
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.”
Mark Gordon, director of mortgages at price comparison website Compare the Market, welcomed the move, saying it would enable homeowners to “be more choosy when shopping around for a mortgage”.
“For too long many mortgage holders have been paying more than they need to every month in repayments as a consequence of being stuck on an uncompetitive standard variable rate mortgage,” he said. “The FCA’s announcement will be welcomed by mortgage prisoners across the country.”
However, Jackie Bennett of trade association UK Finance warned the changes could raise expectations among customers who may still be unable to find a new deal, for example if their home is in negative equity.
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