Thousands of UK homeowners could benefit from lower mortgage payments after the Financial Conduct Authority (FCA) said it wants to change the rules around affordability tests.
The term ‘mortgage prisoners’ was coined for around 140,000 homeowners unable to switch mortgage deals to take advantage of lower interest rates in the last decade. Stricter affordability tests were introduced following the financial crash of 2008, trapping 120,000 borrowers currently with unregulated mortgage owners who are not UK Finance, BSA or IMLA members and not authorised to offer new mortgage deals.
The FCA’s proposal follows several months after some 10,000 homeowners still in expensive deals, but with lenders still operating in the market, were contacted about finding new, improved mortgages that would be available to them.
Tests to be more flexible
A further 20,000 with inactive lenders were also affected, but now the FCA has written to MPs to lay out planned changes. In a letter to the Treasury Committee, FCA chief executive Andrew Bailey discusses a consultation paper and says the new affordability test will change from being absolute to relative, in order to assess whether the new mortgage costs are more affordable than the current ones.
“Our focus will be on those customers who are seeking to move to a cheaper mortgage and are not borrowing more to ensure that a new mortgage is more affordable for these customers,” he says.
Nicky Morgan MP, chair of the Treasury Committee, said: “The regulator must now act swiftly to help these 140,000 mortgage prisoners and not use this consultation to kick the issue into the long grass.”
‘End of a ludicrous situation’
The move was hailed as “a welcome and sensible one” by Martin Lewis, founder of MoneySavingExpert.com.
“For over four years we’ve been saying that it’s ludicrous that people are failing affordability tests because they’re absurdly told they cannot afford a cheaper deal than the one they’re already on.”
The FCA’s letter was also welcomed by UK Finance director of Mortgages Jackie Bennett, who said, “It is a positive step that the FCA has set out the action it will take to help those customers stuck on reversion rates who are with inactive or unregulated lenders.
“We will continue to work constructively with our broad range of members and the FCA to help ensure those customers who want a like-for-like mortgage can switch lenders more easily.”
Hurrah! After many years of campaigning for it – finally there is some light for mortgage prisoners… .https://t.co/uLutezmL1C
— Martin Lewis (@MartinSLewis) January 10, 2019