Thousands of homeowners who are unable to switch to a better mortgage deal should be offered more help, according to a new report by the financial regulator.
The Financial Conduct Authority (FCA) says 30,000 borrowers have become ‘mortgage prisoners’ since stricter lending criteria were introduced after the financial crash.
Separately, the regulator claims many mortgage holders are missing out on savings of hundreds of pounds as they are failing to find the best mortgage deal.
FCA review identifies mortgage issues
With mortgage debts in the UK accounting for more than 80% of household liabilities, the FCA is seeking to make it easier for consumers to get a better deal.
The regulator originally launched its study in December 2016, and while its interim report concludes that a competitive market is ‘working well for many people’, others have been left behind.
What is a mortgage prisoner?
The FCA claims that 30,000 borrowers who took out mortgages before the financial crash have become ‘prisoners’ to their deals.
As affordability stress-tests were tightened in recent years, many borrowers who are on their lender’s standard variable rate (SVR) are now unable to remortgage to a cheaper deal.
Some other homeowners face even greater difficulty, according to the FCA, as they have mortgages with providers who no longer exist or aren’t regulated.
What is the FCA proposing, and how long will it take?
While the FCA has identified the scale of this issue, it’s unlikely that there will be any significant changes soon.
One possible solution may be to gain an industry-wide agreement to approve applications from existing customers with pre-crash mortgages who have always kept up-to-date with their payments.
But many borrowers are still paying off mortgages that have previously been sold to private insurers or equity firms (after the collapse of lenders such as Northern Rock), meaning the introduction of such a rule may be fraught with difficulties.
The FCA has set a deadline of 31 July for responses from the industry, and intends to publish a full report by the end of the calendar year.
Homeowners losing hundreds by not switching
The FCA is also seeking to make it easier for current borrowers to shop around for better deals, as it believes nearly a third of homeowners are failing to find the cheapest mortgage.
The regulator believes some borrowers could save up to £550 a year by switching to a cheaper deal – and that ‘undue barriers’ in the current system are a ‘significant impediment to shopping around’.
How to find the right mortgage deal
If your fixed-rate deal has expired, or you’re currently on your lender’s SVR, it’s worth shopping around to make sure you have the best possible rate.
Remortgaging to a cheaper rate could save you thousands over the life of a mortgage. Just don’t forget to factor in early repayment fees or other charges that might be associated with switching deals.
If you need some advice about mortgages, a broker with whole-of-market coverage can help you navigate a confusing market and find the right deal for your circumstances.
A good broker should be able to look at suitable deals that are only available to intermediaries (and not individual borrowers), and conversely should also advise you if the best mortgage is only available by applying directly yourself.