Lenders Need To Offer More Help To Mortgage Prisoners

Despite making changes to its affordability lending criteria in order to help around 250,000 mortgage prisoners, the Financial Conduct Authority (FCA) estimates that only 14,000 homeowners will benefit.

Major high street lenders have been chastised by FCA for failing to seriously amend their lending criteria following the FCA’s recent affordability assessment criteria changes.

Having reviewed and analysed the depth of the problem for those with customer books for closed, inactive and unregulated lenders, the FCA found only a small fraction of those trapped being helped by lenders.

Of the 250,000 mortgage prisoners, over 170,000 borrowers are up to date and should be eligible for improved deals under the new affordability rules.

The findings also found that many would not benefit from existing deals offered by lenders as they are currently paying interest of 3.5% or less with 40,000 homeowners owing £50,000 or less with around ten years of their mortgage left to pay.

Overall, this huge section of mortgage prisoners face limited value from switching based on current lender deals.

In fact, only 14,000 of the 250,000 mortgage prisoners meet lending criteria and are likely to substantially benefit from a meaningful saving.

The FCA commented:

“We want as many lenders as possible to offer the modified affordability assessment. The evidence so far has shown little desire from larger lenders to adopt the changes. We look forward to more lenders stepping forward and offering products to mortgage prisoners in the coming 3 months. Their participation in this market will be what makes a difference to borrowers currently paying more in interest than they need to.”

Stephen Jones, CEO of UK Finance, said:

“These figures help provide much needed clarity for both customers and lenders confirming that, as per the regulator’s previous estimates, around 14,000 eligible customers will likely meet the lending criteria and stand to make a meaningful saving. Given this number of borrowers, there will be a limited number of firms who, dependent on risk appetite, will be able to develop new products to meet their needs.

“As these figures show, there is still a large number of customers of inactive firms who will not be helped by the new rules and the regulator recognises that many of these customers will also currently sit outside its protection. We therefore urge the government to ensure that all customers, regardless of owner, are treated fairly.”

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