The Financial Conduct Authority (FCA) is to launch a consultation on improving switching options for mortgage customers who are currently unable to do so, the regulator’s chief executive Andrew Bailey has confirmed.
In a letter to Nicky Morgan MP, chair of the Treasury Committee, Bailey revealed that there are 150,000 mortgage customers in the UK who fall into the category of ‘mortgage prisoners’.
FCA analysis found that of that 150,000, there are:
As far as lenders with active, authorised lenders are concerned, the FCA proposed that lenders should commit to allowing customers up to date with their repayments and who are not looking to borrow more to switch to a cheaper deal.
Bailey added that for the remaining customers with inactive or unauthorised customers, the priority should be to switch to an active, authorised lender with whom they may be able to get a better deal.
He adds that the forthcoming consultation, which will likely be put forward in the spring, will focus on potential changes to the body’s responsible lending rules “with the aim to deliver a more proportionate affordability assessment”.
“We intend to move the affordability assessment from an absolute test to a relative test,” he writes.
“Thus, the test would be whether the mortgage costs are more affordable than the current mortgage costs.
“Our focus will be on those customers who are seeking to move to a cheaper mortgage and are not borrowing more to ensure that a new mortgage is more affordable for these customers.”
Responding to Bailey’s letter, Morgan wrote: “These customers are trapped on a far higher interest rate than is necessary through no fault of their own. The regulator must now act swiftly to help these mortgage prisoners, and not use this consultation to kick the issue into the long grass.”
Jackie Bennett, director of mortgages at UK Finance, said: “It is a positive step that the FCA has set out the action it will take to help those customers stuck on reversion rates who are with inactive or unregulated lenders.
“The FCA has noted the progress made through the industry’s voluntary agreement to help borrowers with active lenders switch to a better deal.
“But it has also recognised that regulatory changes are needed to remove the barriers to helping the thousands more customers who are currently with inactive and unregulated lenders.
“We will continue to work constructively with our broad range of members and the FCA to help ensure those customers who want a like-for-like mortgage can switch lenders more easily.”