Banks and building associations have been urged to consider changing loan criteria to help the estimated 47,000 borrowers who could benefit from a cheaper home loan but are currently unable to move.
An assessment of “mortgage prisoners” by the Financial Conduct Authority found that about 195,000 households with debt were sold to inactive lenders, and a quarter of them were able to save money if they are allowed to switch to a new agreement.
However, despite the changes to make it easier for banks to lend these home borrowers a home at a better interest rate than they are paying, the FCA found that demand from customers and supply from lenders loans are low.
“We hope that more mortgage prisoners will be able to convert their mortgages,” the FCA said. “We encourage lenders to consider whether they can modify their lending criteria to lend to mortgage prisoners close to their risk appetite.”
The review looked at the position of borrowers whose loans were sold to new lenders after the financial crisis. At the last count, about 250,000 borrowers were affected, but this number has been reduced as some borrowers have been able to move.
The original borrowers were banks including Northern Rock and Bradford & Bingley, which failed during the crisis.
Many have taken out interest-only mortgages, some have self-claimed income, rather than having to prove it, and some have taken out loans of more than 100% of value (LTV).
After the crash, they were moved to lenders who weren’t offering new deals, so they didn’t have the opportunity to switch to a lower interest rate like they would if they were with an active lender.
The FCA says about 47% are paying interest rates between 3% and 5%, compared with 17% of borrowers with active lenders, while 3.3% are locked in paying more than 5% interest , compared with just 0.8% of other borrowers. .
Of the 195,000 cases the regulator looked at, it said 66,000 were able to switch to a new lender without difficulty, 30,000 were unable to convert but were unlikely to benefit because of the interest rates they paid. Payables are competitive and 34,000 people are late on their payments or near the end of their term so it wouldn’t be possible to convert even if they were with an active lender.
The remaining 47,000 have updated payments, but cannot convert because their mortgage or circumstances would deter lenders.
Gemma Harle, chief executive officer of Quilter Financial Planning, said the company’s mortgage brokers have tried to assist borrowers “but without the support of lenders and the proliferation of mortgages mortgage products are aimed at these customers, it will be difficult to move these people to more than the right product even with financial advice.”
“As a middleman, we are committed to helping this type of customer, but it requires solutions from the entire industry rather than just one segment of it,” she added.
The FCA review will now be reviewed by the Treasury and the lenders.
