The financial regulator has proposed a change to its rules which could make it easier for 10,000s of borrowers in ‘closed mortgage books’ to switch to a cheaper deal – though it will be up to lenders whether they actually carry out the change.
Currently, many mortgage borrowers in ‘closed books’ – ie, those borrowing from a firm that is no longer lending to new customers – struggle to switch away because of tight lending criteria, and are stuck on expensive rates.
The proposed rule change from the Financial Conduct Authority (FCA) would make it easier to switch to a new mortgage deal with a firm that is part of the same financial group as your current lender, as you wouldn’t have to undergo the usual rigorous affordability tests. This would mirror the flexibility that active lenders – those that do lend to new customers – have under existing rules.
As with past mortgage prisoner rule changes though, the FCA cannot make lenders apply these rules. The FCA says, of the 250,000 mortgage prisoners in the UK, 63,000 would be affected by the guidance, and it estimates 25,000 would be able to access cheaper deals as a result. But only a small proportion of these would do so. The consultation on the proposed rule change is set to end on Tuesday 8 September.
‘Mortgage prisoners’ are homeowners who are unfairly trapped on an expensive mortgage, often with inactive lenders that have no other mortgage products, or firms that are not authorised to offer new products. They’re unable to remortgage to a cheaper deal with another lender because they don’t meet strict borrowing criteria.
MoneySavingExpert.com has been fighting their corner since 2015. Most recently, in February 2020, Martin commissioned the London School of Economics and Political Science to find evidence-based policy solutions to unchain 170,000 mortgage prisoners, to push the Government to step in and rescue those that the financial regulator can’t reach. Others, such as the UK Mortgage Prisoners group, have also been campaigning for change.
The FCA has also announced that it will be working with the Money and Pensions Service to create online guidance and a dedicated phone line for mortgage prisoners.