Government admits mortgage prisoner rules won't help all

Government admits mortgage prisoner rules won't help all

The government has confirmed not all mortgage prisoners will be helped by recently proposed changes to the Financial Conduct Authority's responsible lending rules.

In a letter to Nicky Morgan MP, chairman of the Treasury select committee, in January, Andrew Bailey, chief executive of the FCA, said the regulator intends to change its mortgage lending rules 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.

This included a move from an absolute affordability assessment to a relative test.

At the time Mr Bailey admitted the removal of regulatory barriers would not help all mortgage prisoners, as the decision to offer remortgage opportunities to those customers with inactive lenders would remain a "commercial" one.

In a letter sent to Ms Morgan at the end of January, and published today (March 5), John Glen MP, economic secretary to HM Treasury, said it was not "feasible" to require purchasers of the loans of mortgage prisoners to offer new home loans to these individuals.

He said: "As stated in Andrew Bailey's letter on January 9, there ultimately needs to be a willingness from industry to offer remortgaging opportunities to these customers once the FCA’s proposed reforms come into effect.

"This will be a commercial decision for individual lenders based on their risk appetite and the individual circumstances of the customers looking to switch to a cheaper deal."

Mr Glen added: "The inability of customers to remortgage would be a result of their specific circumstances which put them outside of the risk appetite of lenders, rather than inflexibility in regulations." 

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, about 120,000 mortgage prisoners are still trapped on a higher interest rate with unauthorised firms and 20,000 mortgage prisoners are stuck with inactive lenders.

In another letter sent to Ms Morgan last month, and published today (March 5), Mr Bailey reiterated it would be the decision of the lender whether they chose to use the new affordability rules for anyone seeking to remortgage.

Mr Bailey said some mortgage prisoners will have circumstances likely to "put them outside" the risk appetite of some lenders, including if they have arrears or other considerable debts, have a very high loan-to-value mortgage or have mortgages in negative equity.  

Mr Bailey said the regulator does not have the necessary data to determine the status of the mortgage books of more than 120,000 mortgage prisoners with unauthorised lenders.

He said: "It is not currently possible to say who will or will not benefit from our rule changes.

"We are engaging closely with lenders and lender trade bodies to understand the extent to which firms may be interested in taking on certain customers and how these options will be communicated to affected customers."