47,000 mortgage prisoners identified despite being up to date with payments – FCA

The FCA has carried out a review of the 195,000 borrowers, who have mortgages in closed books with inactive firms, finding that 66,000 may be able to switch but also that some 47,000 are stuck despite being up to date with their mortgages.

This has led the regulator to call on mortgage lenders to amend their lending criteria to lend to mortgage prisoners who are close to their risk appetite.

A statement from the regulator read: “We hope that more mortgage prisoners will be able to switch their mortgage. We encourage lenders to consider if they can amend their lending criteria to lend to mortgage prisoners who are close to their risk appetite.

“We are publishing data so lenders can consider whether they can adapt their lending criteria (or use the flexibility in our rules) to lend “to these borrowers. 

Other mortgage prisoners who continue to lie outside the risk appetite of lenders may be able to take steps, with the help of consumer organisations or a debt advice charity, to improve their chances of switching to a better deal in the longer term.”

Of the 195,000 borrowers who have mortgages in closed books with inactive firms, the FCA estimates that there are:

• 66,000 who may be able to switch.
• 30,000 who can’t switch but are unlikely to benefit from switching. They are up to date with payments but can’t switch because of their loan and/or borrower characteristics. However, the interest rate they’re on means they’d be unlikely to save money from switching.
• 47,000 who are mortgage prisoners. Despite being up to date with payments, they cannot switch when it might benefit them to do so, because they have loan and/or borrower characteristics that are outside current lender appetite.
• 34,000 who are in payment shortfall, and 18,000 who are near term. These borrowers wouldn’t be able to switch to a new deal, even if they were with an active lender. 

The Government and industry will use now use the review to consider if there are further practical and proportionate solutions for mortgage prisoners.

The FCA said it “will continue to support them to do this and we will focus on those areas in the market where we identify the greatest harm which could affect mortgage prisoners and other borrowers”.

Those areas in particular are:

• Ensuring firms provide all mortgage borrowers (in both closed and active books) with the support they need when they get into financial difficulty.
• Carrying out work to further understand the issues facing borrowers (in both closed and active books) who have interest only or part repayment mortgages.
• Supervising and enforcing its guidance for firms on the fair treatment of vulnerable customers, to help ensure fair outcomes for customers with characteristics of vulnerability.

Gemma Harle, managing director of Quilter Financial Planning, said: “Today’s FCA review into mortgage prisoners reveals that there around 47,000 people who are unable to switch to a better mortgage deal even though they would benefit from switching and would be paying less per month than they currently do.

“For some time now inflation has been increasing and it is heavily touted that at the next Monetary Policy Committee meeting the Bank of England would announce an interest rate hike.

“While the emergence of the new Omicron variant might mean that this decision is pushed back, at some point in the not-too-distant future rates are likely to increase.

“When they do, mortgage prisoners are often the borrowers hit hardest as they have no means of moving to cheaper mortgage deals and have to stick with their inactive lender’s standard variable rate leaving them with no control of potentially spiralling mortgage repayment costs.

“The FCA rightly highlights in the review that the rules it has put in place to help this group can only be effective if lenders are willing to apply the new assessment and offer a product for mortgage prisoners to allow them to switch. In the current economic environment, lenders are understandably cautious but that largely leaves the problem unsolved, with mortgage prisoners left in limbo.

“Our mortgage network supported the FCA’s call for mortgage intermediaries to help mortgage prisoners back in July 2020 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.

“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.

“We hope that HM Treasury takes the insights from this review and does what’s necessary to find practical and proportionate solution that can be help the thousands of affected borrowers.”