The Financial Conduct Authority (FCA) has claimed that 30,000 borrowers are currently in a mortgage prison unable to switch to a cheaper mortgage deal.

The changes to lenders’ affordability stress-tests has meant thousands of borrowers are currently stuck on their lender’s standard variable rate (SVR), with no means of escape.

The FCA launched its study in December 2016 analysing 1.9 million mortgages taken out in 2016 and involving 1,000 firms and advisers. Its interim report suggests that, while a competitive market is working well for some borrowers, others are being left behind.

Homeowners are failing to find the cheapest deals

The FCA believes nearly a third of homeowners are failing to find the cheapest mortgage, due to “undue barriers” in the current system being a “significant impediment to shopping around”. Apparently, the 570,000 people a year that do succeed in switching, struggle with biased brokers and comparison websites that make identifying the best deal almost impossible, potentially costing them an extra £550 a year on average.

Another 800,000 borrowers are failing to shop around for a remortgage deal for six months after their fixed deal expires, sitting on their lenders’ more expensive SVR. Then there are the 120,000 customers of lenders that have stopped offering news deals, and in some cases they are also unaware that they can switch mortgage lenders to reduce costs.

Charlotte Nelson, finance expert at Moneyfacts, said: “With mortgage rates rising this is an ideal time for the FCA to highlight their concerns about the mortgage market, as the lowest-priced deal is not always the best choice for borrowers, based on true cost. Customers need to weigh up the rate, fees as well as any incentives to find the right deal and not be blind-sided by lowest rates alone.”

Trapped after Northern Rock collapse

Some homeowners are facing even greater problems – there are 260,000 borrowers with mortgages with providers who no longer exist, for example Northern Rock, whose debt has been sold to private insurers or equity firms. These companies only have the right to collect their payments and cannot offer them a new deal.

Tashema Jackson, money expert at uSwitch.com, says: “The FCA’s report highlights that there could be real opportunity for further innovation in how consumers compare and take out mortgages. Price comparison sites are pretty good at showing consumers the mortgages available but aren’t able to access the data required to show prospective customers what mortgages they might be eligible for. If the FCA could help comparison sites access this information from the lenders themselves, comparison could be even more useful for mortgage consumers.”

With UK mortgage debt accounting for more than 80% of household liabilities, the FCA has stated that they are seeking to make it easier for homeowners to get a better mortgage deal. The FCA’s full report will be published by the end of this year.