FCA launches mortgage prisoners consultation

The regulator’s mortgage market study found that some consumers cannot switch to a more affordable mortgage despite being up-to-date with their mortgage payments. This includes so called ‘mortgage prisoners’.

In a letter in January to Nicky Morgan MP, chair of the Treasury Committee, FCA chief executive Andrew 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:

• 10,000 customers with active, authorised lenders;
• 20,000 with firms that are no longer lending commercially, despite being authorised to do so;
• 120,000 customers of firms that are not authorised to lend.

To reduce the barriers these consumers face now or could face in future, the FCA is proposing to amend our responsible lending rules and guidance so that mortgage lenders can choose to undertake a modified affordability assessment where the consumer:

• Has a current mortgage
• Is up-to-date with their mortgage payments
• Does not want to borrow more, other than to finance any relevant product fee or arrangement fee for that mortgage
• Is looking to switch to a new mortgage deal on their current property

Under the modified assessment, mortgage lenders must not enter into a new regulated mortgage contract with an eligible consumer unless they can demonstrate that the new mortgage is more affordable than their present one.

We are also proposing that:

• Inactive lenders and administrators acting for unregulated entities will be required to review their customer books to identify eligible consumers and write to them highlighting this rule change and directing them to relevant sources of information.
• Mortgage lenders which make use of the modified affordability assessment will be required to disclose to consumers the basis on which their affordability has been assessed and provide some additional disclosures about potential risks.
• Mortgage lenders will be required to flag which mortgages have been sold using the modified affordability assessment when submitting Product Sales Data (PSD) reports to the FCA.

Responding to the proposals, Jackie Bennett, director of mortgages, UK Finance, said: "The regulated mortgage industry wants to help eligible customers with unregulated or inactive lenders switch to a better deal.

"We support the FCA’s ambition in its proposals for greater flexibility over affordability assessments and are keen to work closely with the regulator in a joint implementation group to help those firms who want to participate and work towards a common launch date. We have suggested the FCA collects up-to-date information on closed book customers so lenders can understand their circumstances better and develop products that meet their needs.

"We will continue to work with the FCA and government to consider what more could be done to help customers in closed books who will not qualify for a new mortgage under the new proposed rules."