In a letter sent to Nicky Morgan MP, chairwoman of the Treasury Committee, today (January 10) Andrew Bailey, chief executive of the FCA, said the regulator’s consultation would aim to deliver a more proportionate affordability assessment, in an attempt to help remaining mortgage prisoners switch from a potentially higher loan-to-value mortgage with an inactive lender to an active lender.
He said: "We intend to move the affordability assessment from an absolute test to a relative test.
"Thus, the test would be whether the new mortgage costs are more affordable than the current mortgage costs.
"Our focus will be on those customers who are seeking to move to a cheaper mortgage and are not borrowing more to ensure that a new mortgage is more affordable for these customers."
But Mr Bailey cautioned there needed to be a "willingness" from the industry to offer re-mortgaging opportunities to these customers once the regulatory barriers have been removed, stating participation would be a "commercial decision" for firms and not all would have the risk appetite for it.
He said not all customers were likely to benefit from the proposed regulatory changes as some will have specific circumstances that are likely to put the outside the commercial risk appetite of lenders.
The consultation comes after an industry-wide voluntary agreement was established in July last year in response to the FCA’s interim mortgage market study, to allow the 10,000 mortgage prisoners of active lenders to switch to a better deal.
However, there remain about 120,000 mortgage prisoners trapped on a higher interest rate with unauthorised firms and 20,000 mortgage prisoners with inactive lenders.
In response to the letter the Treasury Committee asked the FCA to act swiftly to help mortgage prisoners stuck with inactive and unauthorised lenders, warning the issue should not be kicked "into the long grass" by a consultation.
Ms Morgan said the Treasury Committee had consistently raised the problem of mortgage prisoners with the government and the FCA and the regulator must now act urgently on its plans for those trapped with inactive lenders.
She said: "The FCA has today announced that it will consult on changing its lending rules to allow such customers to switch to an active lender, with whom they may be able to get a better deal.
"The regulator must now act swiftly to help these 140,000 mortgage prisoners, and not use this consultation to kick the issue into the long grass. We will raise these issues when we take evidence from the FCA next week."
Rushanara Ali MP, member of the Treasury Committee, said the FCA appeared to be taking steps in the right direction to ensure that mortgage prisoners are not stuck making higher-than-necessary mortgage payments.
She said: "Whilst there is clearly more work to be done by the regulator, industry also has a vital role to play.
"As Mr Bailey said, firms need to be willing to offer remortgaging opportunities to these customers once the regulatory barriers are removed.
"I hope the FCA will ensure the regulatory barriers are removed as soon as possible and that the FCA closely monitors the actions of the lenders in this regard."
Jackie Bennett, director of mortgages at UK Finance, one of the trade bodies instrumental in creating the cross-industry voluntary initiative for mortgage prisoners with active lenders, said: "It is a positive step that the FCA has set out the action it will take to help those customers stuck on reversion rates who are with inactive or unregulated lenders.
"The FCA has noted the progress made through the industry’s voluntary agreement to help borrowers with active lenders switch to a better deal.
"But it has also recognised that regulatory changes are needed to remove the barriers to helping the thousands more customers who are currently with inactive and unregulated lenders.
"We will continue to work constructively with our broad range of members and the FCA to help ensure those customers who want a like-for-like mortgage can switch lenders more easily."
rachel.addison@ft.com
