Thank you for contacting me about mortgage prisoners. Mortgage prisoners are homeowners who are trapped paying higher rates of interest to their borrower as they cannot meet strict borrowing criteria, which were introduced after the financial crisis.
I recognise that this must be a very stressful and difficult situation for all the individuals affected. It seems unconscionable that mortgage prisoners have not been able to refinance their mortgage to a more competitive rate, as the ability to do so is part of a healthy mortgage market.
In October 2019, the Financial Conduct Authority (FCA) confirmed it had removed some of the barriers that have stopped mortgage prisoners from finding a cheaper mortgage deal. This rule change will allow lenders to carry out a modified affordability assessment for mortgage prisoners, provided they are up to date with their repayments.
FCA data suggests that around 170,000 borrowers are eligible to switch under the new FCA rules, of which 14,000 are mortgage prisoners who are up to date with their payments and likely to meet commercial lending criteria who could benefit meaningfully from switching. The Government expects that lenders will start offering these to borrower’s products using the new rules between April and June 2020.
Treasury Minister, John Glen, recently highlighted the complexity of resolving issues around mortgage prisoners and emphasised the importance of closely monitoring the impact of rule changes. He also suggested that he is open to considering an extension to the regulatory perimeter where benefits to the consumer and markets can be demonstrated, however he cautioned against raising false hope for customers by pursuing a change that does not end up helping them.
I understand that campaigners are now calling on the Government to introduce legislation to ensure fair mortgage rates and to stop the sale of mortgage debt to unregulated institutions and vulture funds. I hope the Government listens carefully on these important issues.
I believe the origins of this problem lie in the reckless behaviour of those in the banking sector running up to the financial crash. As a result of their behaviour, people with no history of default were put in high-risk groups, and ultimately had their mortgages transferred to vulture funds, becoming de facto credit risks despite impeccable credit histories.
I know that many of these funds are outside the remit of standard regulation, but I believe it would be sensible for the FCA to put forward proposals on this, rather than sit on the side-lines.
Thank you once again for contacting me about this important issue. I can assure you that I will continue to follow updates on this closely.