FCA urges lenders to support UK’s 47,000 ‘mortgage prisoners’

Regulator asks banks and building societies to offer support to borrowers unable to switch

Banks and building societies have been urged to consider changes to lending criteria to help an estimated 47,000 borrowers who could benefit from a cheaper home loan but are currently unable to move.

A review of “mortgage prisoners” by the Financial Conduct Authority found there were about 195,000 households whose debts had been sold on to inactive lenders and that a quarter of them could save money if they were allowed to switch to a new deal.

However, despite changes that have made it easier for banks to offer these borrowers home loans at a better rate than the one they are currently paying, the FCA found that demand from customers and supply from lenders has been low.

“We hope that more mortgage prisoners will be able to switch their mortgage,” the FCA said. “We encourage lenders to consider if they can amend their lending criteria to lend to mortgage prisoners who are close to their risk appetite.”

The review looked at the position of borrowers whose loans were sold on to new lenders after the financial crisis. At the last count, it found about 250,000 borrowers were affected, but the number has fallen as some borrowers have been able to move.

The borrowers were initially with banks including Northern Rock and Bradford & Bingley, which failed during the crisis.

Many had taken out interest-only mortgages, some had self-certificated their income, rather than having to prove it, and some took on loans of more than 100% loan to value (LTV).

After the crash they were moved to lenders that did not offer new deals, so were not given the same opportunity to move to lower rates than if they were with an active lender.

The FCA said about 47% were paying an interest rate between 3% and 5%, compared to 17% of borrowers with active lenders, while 3.3% were locked into paying interest at more than 5%, compared with just 0.8% of other borrowers.

Of the 195,000 cases the regulator looked at, it said 66,000 may be able to switch to new lender without difficulty, 30,000 could not switch but were unlikely to benefit as the interest rate they were paying was competitive and 34,000 were behind on payments or near the end of their term so would not be able to switch even if they were with an active lender.

The remaining 47,000 were up to date with payments, but unable to switch because either their mortgage or their circumstances would deter a lender.

Gemma Harle, managing director of Quilter Financial Planning, said mortgage brokers from the company had been trying to support borrowers “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”.

She added: “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’s review will now be considered by the Treasury and lenders.