Working closely with the Financial Conduct Authority (FCA) following its Mortgages Market Study Interim Report, many authorised lenders¹ representing over 93% per cent of the UK’s mortgage market have agreed to help existing borrowers on reversion rates who are up-to date with repayments but because of stricter affordability criteria are currently ineligible to move to an alternative product provided by their lender.
This is the result of a cross-industry voluntary commitment announced today by UK Finance, the Building Societies Association (BSA) and the Intermediary Mortgage Lenders Association (IMLA).
In its Mortgages Market Study Interim Report, the FCA identified a relatively small proportion of borrowers who are on a reversion rate, are up-to-date with repayments and would benefit from switching to a new deal, but cannot do so.
This cross-industry commitment applies only to customers of those lenders that are able to offer alternative products to their existing borrowers. A number of authorised lenders already offer their existing customers the opportunity to switch⁴. However lenders have undertaken to write to any qualifying borrowers by the end of 2018 if they haven’t already done so. Customers do not need to take any action⁵ and will not be obliged to switch if they do not wish to.
To qualify, the following standard principle-based criteria will apply:
customers will need to:
- be first charge owner-occupiers
- be existing borrowers of an active lender
- be on a reversion rate
- be looking for a like-for-like mortgage
- be up to date with payments
- have a minimum remaining term of 2 years
- have a minimum outstanding loan amount of £10,000
And be able to benefit from switching (where it is legally possible under current regulations and law. There may be other exclusions that apply⁶).
Jackie Bennett, Director of Mortgages, UK Finance said: “Lenders have responded to the FCA’s challenge and made a voluntary commitment to help these longstanding borrowers, offering them the ability to switch to an alternative product if they meet the agreed standard criteria – a potential solution that covers over 93% per cent of the market. We expect more lenders to participate in the coming months.Participating lenders will be contacting qualifying homeowners so for now, customers don’t need to do anything but wait to hear from their mortgage provider.”
Paul Broadhead, Head of Mortgage and Housing Policy at the Building Societies Association (BSA) said: “It is pleasing that the FCA recognises that the mortgage market works well for the vast majority of borrowers. By signing up to this voluntary agreement lenders will ensure that existing borrowers are not disadvantaged by the changes to mortgage regulation since the financial crisis. The agreement formalises the actions that many societies have been taking and provides clarity and confidence for all affected borrowers.”
Kate Davies, Executive Director of the Intermediary Mortgage Lenders Association (IMLA) said: “The FCA’s Interim Report on its Mortgage Market Study acknowledged that the mortgage market is generally working well for the majority of borrowers. It noted that some improvements could be made for the minority groups who find themselves unable to switch products, as a result of regulatory changes brought into effect since they took out their loans. This initiative will help a number of those borrowers, and further work is planned to address the needs of others.”
The announcement coincides with the deadline for responses to the FCA’s interim Mortgage Market Study. In the study the regulator found that competition in the mortgage market is working well for the vast majority of people but identified several ways in which the market could work better for others. It also highlighted that there are some borrowers who may benefit from switching yet are unable to move on to a new product, a small proportion of whom are with authorised lenders.
This commitment is focused on customers with active lenders initially, with a view to further consideration of what might be possible for the 20,000 customers with inactive lenders and the 120,000 customers with unregulated mortgage owners, as identified by the FCA – who are not UK Finance, BSA or IMLA members.
Lenders may be able to offer alternative options to some customers. As the FCA recognises, this is not a contractual right, so the circumstances of the case and the lender's policy will determine what options may be available.
For further information please contact:
- UK Finance press office: 020 7416 6750
- BSA press office: Hilary McVitty and Amy Harland 020 7520 5926 and 5927
- IMLA press office: Contact Fran Hart, Amy Boekstein or Lee Jones at Instinctif Partners: email@example.com 020 7457 2020/ 07772994 582
- The full list of lenders who have subscribed voluntary agreement can be found here:
- The names of the initial 59 firms are: Accord Mortgages, Bank of Ireland UK PLC, Bank of Scotland, Barclays plc, Barnsley Building Society, Bath Building Society, Beverley Building Society, Britannia, Buckinghamshire BS, Cambridge Building Society, Chelsea Building Society, Chorley Building Society, Clydesdale Bank, The Co-operative Bank plc, Coventry Building Society, Darlington Building Society, Direct Line, Dudley Building Society, Family Building Society, First Direct, Halifax, Hanley Economic Building Society, Hinckley & Rugby Building Society, HSBC plc, Ipswich Building Society, Kensington Mortgages, Leeds Building Society, Leek United Building Society, Lloyds Bank, Mansfield Building Society, Market Harborough Building Society, M&S Bank, Metro Bank, Nationwide Building Society, NatWest, Newbury Building Society, Newcastle Building Society, Nottingham Building Society, Norwich & Peterborough Building Society, One Savings Bank Plc, Platform, Principality Building Society, Progressive Building Society, RBS plc, Saffron Building Society, Santander UK Plc, Scottish Building Society, Scottish Widows Bank, Skipton Building Society, Stafford Railway Building Society, Teachers Building Society, Tesco Bank, Tipton & Coseley Building Society, Ulster Bank, Vernon Building Society, Virgin Money Holdings (UK) plc, West Bromwich Building Society, Yorkshire Bank, Yorkshire Building Society. We expect more lenders to commit over the coming months.
- The FCA has identified a relatively small proportion of borrowers who took out a mortgage pre-crisis, are on a reversion rate and up-to-date with repayments, and would benefit from switching to a new deal but cannot. These customers are sometimes referred to as ‘mortgage prisoners’. The regulator estimates that there are 10,000 of these customers with active lenders based on data from 2016. This is only a snapshot as customers will move in and out of eligibility. Mortgage providers will be identifying and contacting eligible customers over the coming months and before the end of 2018.
- FCA Mortgage Market Review, 26 April 2014 - http://www.fsa.gov.uk/about/what/mmr
- UK Finance recently published its quarterly Product Transfer data for the first time which showed that the majority of mortgage customers’ switch to a new deal shortly after their previous deal expires. This data supports the FCA’s observation that most borrowers choose to remain with their current lender when they switch product.
- By the end of 2018 all qualifying borrowers will have been contacted – if there hasn’t already been a communication from the firm in 2018. Firms will develop their own strategies for further communications with this or subsequent cohorts of qualifying customers.
- The following exclusions apply:
- Any change to the terms of the mortgage which is likely to be material to affordability would be excluded e.g. additional borrowing, change of term, adding or removing a party to the mortgage.
- Overseas properties - only mortgages on properties in Great Britain and Northern Ireland are included in this agreement.
- Arrears – customers who have aggregate arrears of more than one monthly payment in the past 12 months are not eligible.
- Discontinued products – firms do not need to replicate like for like e.g. if they no longer offer particular products (such as Sharia compliant products, etc).
- Permissions for commercial lets – the agreement will not apply where consent to let has been given.
- Securitisation/closed books – while not a total bar on moving borrowers to a new product, some active lenders may not be able to offer new products immediately due to regulatory and/or legal constraints.
- UK Finance is a trade association which was formed on 1 July 2017 to represent the finance and banking industry operating in the UK. It represents around 300 firms in the UK providing credit, banking, markets and payment-related services. The new organisation brings together most of the activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and The UK Cards Association.
- The Building Societies Association (BSA) represents all UK building societies, which collectively serve more than 23 million customers and have total assets of over £393 billion. Together with their subsidiaries they hold residential mortgages of over £302 billion, 22% of the total outstanding in the UK. They hold over £271 billion of retail deposits, accounting for 18% of all such deposits in the UK. Building societies account for 36% of all cash ISA balances. They employ approximately 43,000 full and part-time staff and operate through approximately 1,500 branches. The BSA has also published its submission to the FCA Mortgages Market Study Interim Report
- The Intermediary Mortgage Lenders Association (IMLA) is the trade association that represents mortgage lenders who lend to UK consumers and businesses via the broker channel. Its membership unites 42 banks, building societies and specialist lenders, including 16 of the top 20 UK mortgage lenders responsible for almost £180bn of annual lending.IMLA provides a unique, democratic forum where intermediary lenders can work together with industry, regulators and government on initiatives to support a stable and inclusive mortgage market. Originally founded in 1988, IMLA has close working relationships with key stakeholders including the Association of Mortgage Intermediaries (AMI), UK Finance and the Financial Conduct Authority (FCA).