Building societies call for Government to protect mortgage prisoners
Building societies are helping to tackle the challenges facing mortgage prisoners by helping those with regulated and active lenders to switch product and calling for Government to protect mortgage prisoners with unregulated lenders going forward.
Mortgage prisoners are often considered as a single homogenous group, but the majority of mortgage prisoners fall into one of three main groups according to FCA research from 2016.
There are consumers who could switch to a better deal with their existing provider but have so far chosen not to do so. Another group are with non-active but regulated firms. The third main group are borrowers who are with non-active and/or non-regulated firms, the FCA has estimated that there are around 215 mortgage books that fall into this category.
Each group needs tailored solutions as they are in different situations and pose different legal, risk and operational challenges.
For the first group of borrowers, a cross industry voluntary agreement covering 97% of the market and launched in July 2018, ensures that eligible borrowers with an active lender have already been given an option to move to a cheaper mortgage with the same lender if they choose to do so.
In simple terms an eligible borrower is an owner-occupier who is an existing borrower of an active lender, is paying a reversion rate of interest and is looking for a like-for-like mortgage. Like-for-like means that the mortgage is of the same amount, is secured on the same property and is in the names of the same borrowers. The eligible borrower must also be up to date with their mortgage payments.
In an effort to assist the other two groups the FCA is considering modifying mortgage affordability rules. An FCA consultation about this has just closed with a decision due in the Autumn. While these proposed changes are a positive step forward for some borrowers, current FCA information indicates that these changes may only help around 2,000 to 14,000 borrowers out of a potential population of 500,000.
One challenge for those trying to help mortgage prisoners is that virtually no information about the mortgages, the borrowers or the interest rates being charged on the mortgage books with unregulated lenders is currently available. Data is urgently needed in order to profile these mortgages, so that the process can move forward and lenders can assess what is possible.
The FCA’s recent Regulatory Perimeter report has identified that borrowers in mortgage books that are being sold to unregulated entities, whether by UKAR or others, do not have the same consumer protections as a borrower with an active lender under the aegis of FCA regulation. In light of likely future sales the FCA Regulatory Perimeter should in our view be extended and every mortgage book sale should have a regulated legal title holder. This would ensure that FCA rules, including the requirement to treat customers fairly applies to all mortgage borrowers.