Mortgage prisoners could be exempt from affordability assessments and allowed to transfer to a less costly mortgage if a bill presented to parliament goes ahead.
MP for Dover Charlie Elphicke presented a 10-minute rule bill to the House of Commons yesterday (May 7) as a first step towards freeing the 200,000 consumers who are trapped by their high-rate mortgage and unable to switch to a different lender or policy.
The bill would force lenders to treat such borrowers as "grandfathered" — an exemption that allows mortgage prisoners to switch without meeting the assessment brought in by new regulation — and the mortgage would be permitted without any regulatory penalty for the bank.
Mortgage prisoners are predominantly borrowers who took out a mortgage before the financial crisis but are now blocked from switching to better rates due to changes in lending practices.
In some cases consumers are told they cannot afford the new deal under the lending rules despite the new policy having cheaper monthly payments than their existing one.
Mr Elphicke described this as a "crazy situation" and told parliament: "[Mortgage prisoners] are people who are trapped by changes in mortgage regulation. They are trapped in expensive mortgages and unable to remortgage to get a better deal.
"The rules say that they cannot afford payments on a mortgage at, say, 2 per cent, so they are forced to continue with a mortgage paying 5 per cent or more."
Mr Elphicke said the Treasury also needed to take responsibility and stop selling loan books to inactive lenders and "vulture funds" that buy loan books and chase the payments.
He said: "The Treasury has been selling Northern Rock’s loan book to funds like Cerberus. When selling these books, they should make sure that there are protections so that borrowers do not lose out."
Last month, the government sold NRAM — formerly part of Northern Rock — mortgages to inactive lender Citi, but the Treasury stated it had been unable to find an active lender for the deal.
Meanwhile the Financial Conduct Authority has also proposed changes to lenders’ affordability assessments and suggested a "modified assessment" for those trapped by their mortgage, but the government confirmed this would not help all prisoners.
The regulator also proposed inactive lenders and administrators acting for unregulated firms should review their customer books to identify eligible customers and highlight the rule changes to them.
While talking to parliament, Mr Elphicke said the FCA’s proposed changes "sounded good" but stressed there was a "big shortcoming" as while the proposals give lenders the option to contact consumers and adopt the modified assessment, this would not be obligatory.
The bill will be read for a second time in parliament today (May 8).
imogen.tew@ft.com
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