Trade body UK Finance has called on the government and the FCA to do more to help the 'mortgage prisoners' who cannot be assisted by the regulated industry.
Mortgage prisoners are predominantly borrowers who took out a mortgage before the financial crash but are now blocked from switching to a better rate due to changes in lending practices.
Last July, lenders committed to helping mortgage prisoners in a market-wide response to the FCA’s interim mortgage market study. A total of 59 authorised lenders, which represented 93 per cent of the UK’s residential mortgage market, agreed to help such borrowers.
Speaking at the annual mortgage lunch last Friday (April 12), Richard Rowntree, chair of UK Finance’s mortgage personal service board, celebrated the success of the agreement but said the industry had further to go.
He said the agreement only partly addressed the problem because it didn’t help customers of inactive lenders or unregulated entities — lenders who no longer offered mortgages or financial bodies that were not regulated by the FCA.
He said: "Following the industry agreement coordinated by UK Finance, active lenders have made good progress in assisting those customers who may be able to save money by switching to a better deal. More than 26,000 customers were contacted by the end of 2018."
According to the FCA, there are about 20,000 ‘mortgage prisoners’ with firms authorised to lend but inactive and about 120,000 people who have mortgages with unregulated lenders.
These customers are generally up-to-date with mortgage payments but their current lender does not offer new deals and they can’t switch because they don’t meet the new affordability assessments.
Mr Rowntree said although the FCA’s consultation on new lending rules — which proposed a ‘modified’ affordability check on such customers — would help some people, he stressed not everyone would benefit from the change.
If it goes ahead, lenders would be able to undertake a less stringent check on such consumers which means they would no longer have to abide by certain affordability rules, such as to verify the consumer's income.
Mr Rowntree said: "It’s now for the government to work with the FCA on full regulatory protections and fair treatment for the many thousands of customers with inactive lenders or unregulated owners, who we in the regulated industry, would still be unable to help."
In the past, the government admitted not all mortgage prisoners would be helped by changes to the rules and chief executive of the FCA, Andrew Bailey, said the decision to offer remortgage opportunities to those customers would remain a "commercial" one.
Robert Sinclair, chairman of the Association of Mortgage Intermediaries, agreed there needed to be government intervention to solve the problem.
He said: "The main trade bodies are talking to the FCA on what might be possible for those trapped borrowers who might be able to meet the new proposed affordability rules.
"There remains issues for those who are with inactive lenders or unregulated asset owners who are under no obligation to offer any alternatives to these mortgage borrowers.
"We will need the government to intervene to encourage these entities to communicate with the mortgage holders to advise that new affordability rules might allow them to move to a new lender."
Dan White, managing director at White Financial Services, said: "The issue with a large part of mortgage prisoners is being ‘stuck’ with inactive lenders, the majority of whom didn’t provide the initial borrowing but bought a loan book based on business proposition for profit instead of looking to service the clients.
"Currently, pretty much every active lender will offer a rate switch or product transfer service to their clients which enables clients to still maintain a competitive rate, even if their circumstances may prevent them from borrowing the equivalent mortgage with an alternative lender.
"The FCA need to intervene in this and prevent ‘loan books’ from being sold to third party companies mainly for profit and instead put in place a due diligence whereby the lender or organisation purchasing can offer products to service these clients which will then prevent them from becoming mortgage prisoners."
Earlier this month the government announced it was to sell loans worth £4.9bn acquired by the taxpayer during the financial crisis to inactive lender Citi with the majority of financing being provided by Pimco, a bond manager.
Concerns were raised about the deal and what it meant for clients but the Treasury stated it was unable to find an active lender for the deal.
imogen.tew@ft.com
