Speaking at the UK Finance Annual Scottish Mortgage Lunch on Friday (March 8), Jackie Bennett said there were thousands of customers with inactive lenders or unregulated owners that active lenders were currently unable to help.
She said many of those customers could not meet the affordability requirements and lenders were unable to use transitional arrangements they used previously because of the way the Mortgage Credit Directive was brought in in the UK.
But she added the FCA had signalled willingness to consider a more relative affordability test for these customers which it will consult on in the spring.
It emerged in January that the FCA will consult on changes to its responsible lending rules in an effort to help free mortgage prisoners.
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.
Ms Bennet said: "We await to see details but for those customers who do not want to borrow more, the lender is likely to be able to take into account payment history and whether the new mortgage cost is more affordable than the current mortgage cost.
"This will allow active lenders to offer remortgage products for customers of closed books."
However, she said it would be a commercial decision for each lender as to whether this was something they wished to offer.
Not all customers were likely to benefit as some will have circumstances that put them outside of the commercial risk appetite of lenders, she added.
Ms Bennett believes the FCA should be given sufficient powers to protect customers who cannot or won’t switch, particularly where the book owner is not regulated.
She said: "We know more generally there has been considerable debate about customers on back book rates.
"We don’t believe this is an area where there should be a pricing intervention. Lenders have made considerable strides in contacting customers both pre and post the end of a fixed term and made it easier for people to switch on to a new rate.
"This is demonstrated by the nearly £150bn of product transfers carried out in 2018 which is in addition to £87bn of remortgaging in the residential mortgage market.
"Within this just over half of customers take advice when they do a product transfer. Taking product transfers and remortgaging together, this means that almost 1 in 5 customers switched their mortgage in 2018."
Ms Bennett said she expects remortgaging and product transfers to continue to be strong in 2019 as previous two and three-year fixed rate products come to an end.
However, with over half of all new mortgages going on to five-year fixed rates, Ms Bennett added the rate of churn would not continue at the same level into 2020.
Ms Bennet said UK Finance was engaging with the Scottish government’s debate on Housing Beyond 2021.
The government is in the early stages of developing its route map for policy interventions and is aiming to take a ‘whole housing system’ approach.
However, Ms Bennett warned the Scottish government must take account of the role and contribution of private finance across all tenures in helping to meet its housing targets and wider delivery outcomes.
She said: "Much of what the government would like to achieve would simply not be possible without private finance."
Ms Bennett added: “Decisions on the future of the Help to Buy scheme, which ends in March 2021, are expected to be made in the context of Housing Beyond 2021.
"However, it’s important to have clarity on the future of the Help To Buy Scotland scheme, sooner rather than later, so that the potential for market disruption is avoided if the scheme ends or new arrangements are put in place."
Ms Bennett also warned the increase in the Land and Building Transactions Tax additional homes supplement from 3 per cent to 4 per cent announced in the Scottish government’s 2018-19 Budget was likely to add to the cumulative burden on Scotland’s private landlords.
She said: "We are seeing the impact of regulatory and other fiscal change on the buy-to-let sector, and there is a concern that an unintended consequence of the changes could be professional landlords leaving the sector, impacting the private rented sector more broadly and putting more pressure on people’s housing choices."
