Who are mortgage prisoners?
So-called ‘mortgage prisoners’ are people who’ve been told they ‘can’t afford’ to remortgage, even though they are keeping up with their payments and want to switch to a CHEAPER rate.
An EU rule called the Mortgage Credit Directive means – at least in the UK’s interpretation – anyone applying for a mortgage is subject to strict affordability checks scrutinising their income and outgoings, even if they already have a mortgage and are now applying for a cheaper one.
Most affected by the problem find themselves trapped because their current mortgage provider can’t offer them a new mortgage, and so they can’t be offered a mortgage without an affordability check as an existing customer. In total the FCA estimates there are 150,000 mortgage prisoners, who fall into three categories:
- 120,000 with unregulated/unauthorised lenders. These firms aren’t regulated by the FCA and so can’t offer new mortgages.
- 20,000 with inactive lenders. These are firms that are able to offer mortgages, but no longer do – so customers who have mortgages with them and can’t pass an affordability check with another lender can’t move to a better deal.
- 10,000 are with lenders which do offer mortgages, but have been applying strict affordability criteria even to existing customers. This group are already being helped – last July 59 lenders pledged to write to anyone in this situation and let them know they can switch to a cheaper deal with the same provider without an affordability check.
The FCA hopes the 140,000 people in the first two categories will be helped by relaxing the rules on affordability checks, as they will be able to apply for a cheaper deal with another mortgage provider.