Moving forward to help 'mortgage prisoners'

The Building Societies Association has today responded to the FCA proposals to help Mortgage Prisoners by enabling lenders to utilise a modified affordability assessment.

The Building Societies Association has today responded to the FCA proposals to help Mortgage Prisoners by enabling lenders to utilise a modified affordability assessment:

Paul Broadhead, Head of Mortgages & Housing at the Building Societies Association said: 

“At this stage I think it is important to be honest about the challenges and the reality that it will take some time to work through to a sensible conclusion.  We recognise the importance of helping those mortgage borrowers that do not have the option to move to a better deal because their mortgage has been sold to an unregulated purchaser. However, information about these borrowers’ circumstances remains sketchy and we are therefore working blind.

“The BSA, as well as the FCA, recognises that these borrowers have fewer safeguards than those with regulated lenders and this needs to change. The Government must act now to ensure that these borrowers are subject to the same regulatory protections as they were when they first took out their mortgage. Plus, I call on the FCA and the Government to do all that they can to ensure that the sale of any mortgage book from now on does not perpetuate this issue.

“Building Societies will participate actively in the cross-industry implementation group that the FCA is setting up to move things forward.  I would love this issue to be simple and straightforward but it isn’t.”

  • No one with a regulated mortgage lender has cause to be a ‘mortgage prisoner’ 
    The cross industry voluntary agreement launched in July 2018, coupled with work at some lenders that pre-dated this, means that eligible borrowers have been given the option to move to a cheaper mortgage with the same lender if they choose to do so.  An eligible borrower is someone who is:
    • A first charge owner-occupier
    • An existing borrower of an active lender
    • On a reversion rate
    • Looking for a like-for-like mortgage (same amount, same property, same borrowers)
    • Is up to date with payments
    • Has a minimum remaining term of 2 years
    • Has a minimum outstanding loan amount of £10,000
  • The ‘mortgage prisoner’ issue today relates to borrowers who are stuck with an inactive or unregulated lender.
    The proposals from the FCA to change the affordability rules are a positive step forward for these borrowers but current information indicates that only a minority will be able to switch lender as a result:
    • The FCA has estimated that the changes proposed may only assist between 2,000 and 14,000 borrowers out of 500,000.¹ 
    • The challenge is that virtually no information about the mortgages, the borrowers or the interest rates being charged in these books is currently available.  Data to profile these mortgages is essential for the process to move forward and lenders to assess what is possible.
  • It is essential that the FCA and the Government take action urgently to ensure that consumers whose mortgage is sold to an unregulated lender have robust consumer protections extending to interest rates.
    We have seen announcements about the sale of a number of mortgage books in recent weeks.  The FCA has agreed that such borrowers do not have the required consumer protections.  Action must be taken to ensure that they do and that such sales do not lead to more ‘mortgage prisoners’. 
    • The regulatory perimeter should be extended to include these customers
    • Every mortgage book sale should have a regulated legal title holder to ensure that FCA rules, including the requirement to treat customers fairly apply   


Notes to Editors

Paul Broadhead, BSA Head of Mortgages & Housing is available for interview.  He can be contacted direct on 0207 520 5917.

The BSA Press team can be reached on 0207 520 5926/5927

A copy of the BSA’s full response to the FCA can be accessed here

¹ In CP19/14 Mortgage Customers Proposed Changes to Responsible Lending Rules & Guidance the FCA identified a pool of some 500,000 customers across 215 mortgage books with inactive or unregulated lenders that met the following criteria:

  •  On a reversion rate
  •  Up to date with payments
  •  Have a residential mortgage that is not a lifetime mortgage

Of these the FCA estimated that there are between 2,000 and 14,000 consumers who would be able to switch to a better deal as a result of their proposals.