Regulators and industry bodies reach agreement to free ‘mortgage prisoners’

Following the City watchdog’s Mortgages Market Study Interim Report, the regulator sought consultation with lenders on whether and how to enable customers on an active lender’s reversion rate to switch to a better deal in certain circumstances – including whether this could be achieved through a voluntary agreement.

That consultation has now paved the way for a new industry agreement to allow home owners to move to a better deal from their existing lender.

The moves aim to help some customers who have been sitting on their lender’s standard variable rate (SVR), following their initial deal coming to an end.

Stricter affordability rules introduced in the wake of the financial crisis mean that, despite keeping up with their repayments, some borrowers would benefit from switching to another deal with their existing lender but they have been unable to do so.

The FCA has estimated there are 10,000 of these customers with active lenders, based on data from 2016.

Lenders will be identifying and contacting eligible customers before the end of 2018 with details of potential alternative deals.

Some 59 lenders representing 93 per cent of the UK’S residential mortgage market have agreed the new standards.

The voluntary commitment was announced by UK Finance, the Building Societies Association (BSA) and the Intermediary Mortgage Lenders Association (IMLA).

In a statement, the FCA said: “We welcome this initiative(link is external) by UK Finance, the Building Societies Association and the Intermediary Mortgage Lenders Associationto respond to that challenge. We will work closely with industry to discuss the detail of this arrangement and monitor the impact it will have. We will also continue to work with industry to identify solutions for borrowers who have mortgages with inactive firms and any active lenders not signed up to this agreement.”

To qualify for a potential mortgage switch, borrowers will have to meet certain criteria, including being the existing borrowers of an active lender, looking for a like-for-like mortgage, being up-to-date with payments, having at least two years left to run on their remaining term and having a minimum outstanding loan amount of £10,000.

Customers who have built up aggregate arrears of more than one monthly payment in the past 12 months are not eligible.

The commitment is focused on customers with active lenders initially.

Jackie Bennett, director of mortgages, UK Finance, said more lenders are expected to take part in the agreement in the coming months.

She said: “Participating lenders will be contacting qualifying home owners so for now, customers don’t need to do anything.”