FCA urges lenders to support UK’s 47,000 ‘mortgage prisoners’

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Banks and mortgage lenders have been urged to consider changing the lending criteria to help around 47,000 borrowers who might qualify for a cheaper home loan but are currently unable to relocate.

A review of “mortgage prisoners” by the Financial Conduct Authority found that there were around 195,000 households whose debts had been sold to inactive lenders and that a quarter of them could save money if they were. they were allowed to move to a new agreement.

However, despite changes that have made it easier for banks to offer these borrowers home loans at a better rate than they are currently paying, the FCA has found both customer demand and lender supply to be low. .

“We hope that more mortgage holders will be able to change their mortgages,” FCA said. “We encourage lenders to consider if they can change their lending criteria to lend to mortgage holders who are close to their risk appetite. “

The review examined the situation of borrowers whose loans were sold to new lenders after the financial crisis. In the last count, he revealed that around 250,000 borrowers were affected, but the number fell as some borrowers were able to relocate.

The borrowers were initially with banks including Northern Rock and Bradford & Bingley, which went bankrupt during the crisis.

Many had taken out interest-only mortgages, some had self-certified their income, rather than having to prove it, and some had taken out loans of over 100% of the loan value (LTV).

After the crash, they were moved to lenders who weren’t offering new deals, so they didn’t have the same opportunity to switch to lower rates as if they were with an active lender.

The FCA said about 47% paid an interest rate of between 3% and 5%, compared to 17% of borrowers with active lenders, while 3.3% were forced to pay interest above 5%. , against only 0.8% of other borrowers. .

Of the 195,000 cases examined by the regulator, he said that 66,000 might be able to change lenders without difficulty, 30,000 could not change but likely would not benefit because the interest rate they were paying. was competitive and 34,000 were in arrears or near the end of their tenure, so they could not change, even if they were with an active lender.

The other 47,000 were up to date with their payments, but unable to change because their mortgage or their circumstances would deter a lender.

Gemma Harle, managing director of Quilter Financial Planning, said the company’s mortgage brokers have tried to support borrowers “but without the support of lenders and a proliferation of mortgage products aimed at these customers it will be difficult to move. these people towards more suitable products even with financial advice ”.

She added: “As intermediaries, we are committed to helping this type of client, but that requires solutions from the whole industry rather than just one segment.

The FCA review will now be reviewed by the Treasury and lenders.

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