A group of MPs is set to scrutinise how decisions made by the Financial Conduct Authority have affected so-called mortgage prisoners as part of a new inquiry.
In a ‘call for evidence’ published yesterday (June 3), the all-party parliamentary group on mortgage prisoners said it wanted to from mortgage prisoners, consumer groups, mortgage advisers and lenders about the impact of government and FCA policy on this group of consumers.
Mortgage prisoners are those locked in their mortgage when they could potentially get a cheaper deal elsewhere.
This concerns predominantly consumers who took out a mortgage before the financial crisis but are now blocked from switching due to stricter lending rules, or because their loan was sold to inactive lenders.
Such consumers are often told by lenders they cannot afford the new deal under the lending rules despite the new policy having cheaper monthly payments than their existing one and the borrower having continually paid off their monthly bill and stayed out of arrears.
The APPG, which launched last month, will also look at whether the FCA’s proposed new affordability rules are sufficient to ensure some relief for mortgage prisoners and whether other changes should be introduced to the scope of FCA regulation of mortgage lending.
The FCA’s suggested amendment to affordability rules gives lenders the option to undertake a "modified affordability assessment" for mortgage prisoners which means they no longer have to abide by certain affordability rules, such as to verify the consumer’s income.
Other questions posed by the cross-party group include whether UK Finance’s voluntary agreement is effective, what safeguards should be put in place by the government when mortgages are sold and why active lenders have been unwilling to participate in mortgage sales.
Trade body UK Finance’s agreement — signed by 59 authorised lenders including Lloyds, NatWest, Nationwide and Santander — sets out common standards to help mortgage prisoners.
The largest group of mortgage prisoners are former Northern Rock and Bradford & Bingley customers whose loans were taken on by the government as part of a rescue package after the financial crisis and have since been sold on to inactive lenders or private equity funds.
In April, the government sold NRAM mortgages to inactive lender Citi, but the Treasury stated it had been unable to find an active lender for the deal.
The APPG’s short enquiry will look into the selling of loans and ascertain whether a full public inquiry should be launched.
MP Seema Malhotra, co-chair of the APPG, said: "Mortgage prisoners have paid thousands of pounds more in interest and some face losing their homes, leading to stress, ill-health, depression, relationship breakdown and damage to their businesses and credit records.
"More than anything, they told us how frustrating it is to be paying 5 per cent or 6 per cent and be told that you cannot 'afford' a mortgage which would halve your interest rate and reduce your mortgage payment significantly.
"The APPG will be examining what changes need to be introduced by lenders, the government, UK Asset Resolution and the FCA to ensure that all mortgage prisoners are treated fairly and get a fair deal."
The plight of mortgage prisoners has been pushed into the public eye and brought to the FCA and government’s attention partly through the work of pressure group UK Mortgage Prisoners.
The group met with both the FCA and the Financial Ombudsman Service ahead of a parliamentary debate on the topic of mortgage prisoners taking place this Thursday (June 6).
imogen.tew@ft.com
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