The Financial Conduct Authority recently issued its statement around those it considers to be a ‘mortgage prisoner’.
It is estimated that around 140,000 people with mortgages are currently classed as mortgage prisoners (although some have quoted this to be as high as 500,000). This means that the customer could be with a lender who is no longer active, or a lender who has ‘bought’ a number of customers from other lenders but who does not offer additional mortgage products once the customers current incentive (fixed) rate period comes to an end. So, effectively, the client will sit with the lender on their standard variable rate, normally a lot higher than other available incentive rates, and because of various reasons, they may not be able to move to another lender. This could be due to their loan to value (amount borrowed against the value of the property), or maybe that particular lender at the time had attractive, exclusive income multiple calculations, which are no longer offered, or new and stricter criteria no longer enables them to change lender.
The regulator is seeking a way forward. As such, one area of the statement confirms that mortgage lenders can choose to carry out a modified affordability assessment where the consumer:
- has a current mortgage
- is up to date with their mortgage payments
- does not want to borrow more, other than to finance any relevant product, arrangement or intermediary fee for that mortgage
- is looking to switch to a new mortgage deal on their current property
In short, this means that there will be minimal and relaxed affordability checks and the lender must confirm that although this may result in a better rate for the customer, there may be potential risks as this is different from the normal affordability checks and assessments carried out.
Great news for those stuck with historic lenders on high rates. But will only work if all lenders are encouraged to offer this option as it’s not mandatory. As this can be quite complex, and only certain lenders will offer this assistance, speak to your local independent mortgage brokerage to find out more and seek professional guidance.