Lenders have committed to helping "mortgage prisoners" in a market-wide response to the Financial Conduct Authority’s (FCA) interim mortgage market study.
A total of 59 authorised lenders have agreed common standards to help borrowers who took out a mortgage before the financial crisis but were now blocked from switching to better rates despite keeping up with their repayments.
The lenders represent 93 per cent of the UK’s residential mortgage market and include Lloyds, NatWest, Nationwide and Santander as well as a number of challenger banks like Metro Bank and a range of building societies.
The agreement is a result of a cross-industry voluntary initiative announced today by trade bodies UK Finance, the Building Societies Association (BSA) and the Intermediary Mortgage Lenders Association, following the findings of the FCA’s mortgage market study in May.
In its report, the FCA found the mortgage market worked well but some borrowers on reversion rates who were up-to-date with repayments were also ineligible to move to another product provided by their lender due to stricter affordability criteria.
A number of lenders already offer their existing customers the opportunity to switch products, but lenders have undertaken to write to any qualifying borrowers by the end of 2018 if they have not already done so.
The agreement is initially focused on the 10,000 borrowers identified by the FCA in 2016 data to be with active lenders, with a view to further consideration on what might be possible for the 20,000 customers currently with inactive lenders and the 120,000 with unregulated mortgage owners who are not UK Finance, BSA or IMLA members.
Jackie Bennett, director of mortgages at UK Finance said lenders have responded to the FCA’s challenge and made a voluntary commitment to help these long standing borrowers.
She said: "We expect more lenders to participate in the coming months. Furthermore, we will be working closely with the FCA and active lenders to see what might be possible for customers of inactive and unregulated lenders.
"Participating lenders will be contacting qualifying homeowners so for now, customers don’t need to do anything but wait to hear from their mortgage provider."
Paul Broadhead, head of mortgage and housing policy at the Building Societies Association, added: "By signing up to this voluntary agreement lenders will ensure that existing borrowers are not disadvantaged by the changes to mortgage regulation since the financial crisis.
"The agreement formalises the actions that many societies have been taking and provides clarity and confidence for all affected borrowers."
The cross-industry commitment announced today will only apply to customers able to benefit from switching and whose lenders are able to offer alternative products to their existing borrowers.
The FCA issued a statement today (31 July) welcoming the voluntary commitment and stating its intentions to work closely with the industry to discuss the detail of the arrangement and its potential impact.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said the announcement was great news for those borrowers trapped on high reversion rates with lenders who are not prepared to offer them a better deal.