A 140-page mortgage prisoners review from the Financial Conduct Authority, published by the government today (November 29), found a lack of lender risk appetite and lack of engagement from borrowers meant fewer borrowers have switched mortgages than expected.
Mortgage prisoners are customers who have previously been unable to switch mortgages despite being up-to-date with their payments.
The FCA loosened its rules last year to allow lenders to assess affordability based on a mortgage prisoner’s track record of making mortgage payments if they are not looking to move house or borrow more.
It also established a list of mortgage intermediaries willing to help mortgage prisoners, which was hosted on the Money and Pensions Service’s site.
However, data published today showed the number of calls made to brokers by mortgage prisoners has fallen month after month since December, down to a mere 14 in September.
Source: FCA
The review pointed to a number of reasons why borrowers may not have switched after being sent letters making them aware that options were available to them.
One reason for a lack of engagement could have been because of the large number of brokers that were available to choose from - the list on the Money Helper site is 36 pages long.
I was also pointed out that mortgage brokers have been particularly busy during the pandemic so may have been less engaged with mortgage prisoners at the time.
The report stated: “Some stakeholders also identified the possibility that intermediaries’ ability to engage might have been affected by the pandemic and the active state of the market at the time, buoyed by the temporary stamp duty cut.”
The review found that in response to 140,000 letters sent about potential switching options, MoneyHelper received only 534 calls and mortgage intermediaries received 702 calls.
It also said there may have been some overlap between the calls to MoneyHelper and intermediaries.
In December 2020, 257 calls were made to intermediaries but by September 2021 this had fallen to only 14.
Across the 10 months a total of 702 calls had been made to brokers, and 66 applications submitted to lenders. A mere 26 of these resulted in a mortgage offer.
Other reasons given for lack of engagement were that some borrowers were only sent one letter, others had difficulties understanding the communications with some saying it was a struggle to find out what products were being offered by lenders and also that the pandemic meant people were less likely to change their finances.
Gemma Harle, managing director of Quilter Financial Planning, said: “Our mortgage network supported the FCA’s call for mortgage intermediaries to help mortgage prisoners back in July 2020 but without lender support and a proliferation of mortgage products aimed at these customers, it is going to be difficult to move these people into more suitable products even with financial advice.
“As intermediaries we are committed to helping this type of customer, but it requires solutions from the whole industry rather than just one segment of it.”
The FCA estimates there are 47,000 mortgage prisoners, a quarter of those who have mortgages with inactive firms, who cannot switch when it might benefit them to do so, because they have loan or borrower characteristics that are outside current lender appetite.
amy.austin@ft.com
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