The government has said it will look for “practical and proportionate solutions” for those trapped in a mortgage with an inactive firm once the Financial Conduct Authority (FCA) publishes its review.
The Treasury said it will seek “further engagement with inactive firms” as part of its post-review follow up “to help as many affected borrowers as possible switch to an active lender”.
Due to be laid before parliament by November, the FCA's review - announced back in April - will gather data on the demographic and loan characteristics of mortgage prisoners, as well as review the switching options currently available to them under new regulation.
The FCA estimates there are 250,000 borrowers who have a mortgage held by an ‘inactive firm’ - that is, a firm which is no longer lending or regulated to lend following stricter regulations brought in after the financial crisis.
It is unclear how many of these borrowers are mortgage prisoners - those unable to switch to a new mortgage deal despite being up to date with their mortgage payments.
The government's pledge was signed by the Association of Mortgage Intermediaries, UK Building Societies Association and UK Finance, alongside major high street lenders HSBC, Lloyds Banking Group, Nationwide Building Society, NatWest Group, Santander UK, and Barclays.
One practical solution the Treasury cited for mortgage prisoners was taking advantage of the modified affordability assessment, which the FCA announced back in 2018.
It allows lenders to carry out partial, rather than full, affordability assessments on borrowers which fit the mortgage prisoner profile.
Back in November, the FCA’s chief executive Nikhil Rathi told MPs seven lenders had released products to mortgage prisoners looking for a better deal.
“The steps that the FCA took are now, I think, bearing fruit to adjust the affordability rules to enable the affected to switch to a new lender, without the same affordability checks as would be needed under normal circumstances,” he told the Treasury Committee on November 4.
“Those rules are now in place, and we have seen approximately seven lenders I think, so far, have started to offer products, including three of the largest lenders in the country, to enable people to switch, should they choose to.”
In October, a 33-page list containing the details of 455 mortgage advice firms was published on the Money Advice Service website for borrowers who need help switching to a cheaper mortgage.
The list was created following the FCA’s call in July 2020 for mortgage intermediaries to show willingness to help mortgage prisoners.