MPs Consider Banking Bill Regulations Trapping Mortgage Prisoners
A Conservative MP, passionate about helping the plight of mortgage prisoners, has convinced parliament to discuss the Banking (Consumer and Small Business Protection) Bill in a bid to persuade government to increase the help and power offered to those trapped in their mortgage.
Meeting yesterday, MPs discussed amendments to strict affordability assessments that should consider a borrower’s repayment history as well as their income and expenses.
It is estimated that over 200,000 households are trapped in their mortgage because they are unable to pass affordability assessments.
Those that acquired their mortgage prior to the financial crash of 2007 enjoyed a less rigorous lending process with lenders confident in recouping any potential losses amidst buoyant market conditions.
However, following a more robust lending process, that considers both income and expenses, initiated in the Financial Conduct Authority’s (FCA’s) Mortgage Market Review, those previously offered a mortgage would no longer be eligible under new standards, trapping them in their current deal.
Even those with mortgages that have been able to highlight a history of successfully repaying their loan, are now unable to pass the lending criteria, stuck in their current mortgage with few available options.
Earlier this year, the FCA amended their criteria, encouraging lenders to consider a borrower’s repayment history and taking this into account when making decisions on remortgaging products. However, this remains a factor at the lender’s discretion rather than a regulatory requirement. This is something that MPs have argued should become a legal consideration for lenders moving forward.
In the meantime, unable to switch deals or remortgage their property, mortgage prisoners are trapped paying, in some cases, extortionate rates of interest for their property.
MP Charlie Elphicke, Conservative MP, claimed:
“The government should be lending a helping hand, not a tin ear. The Treasury should not be selling mortgages off to vulture funds like Cerberus without protection.
“The regulators should be doing their bit to help free the mortgage prisoners.
“This is an issue the government should be acting upon. We want people who work hard to be able to enjoy success. Yet we will not tolerate people being taken advantage of or unfairly losing out. That is why we need to forge a new covenant to deliver greater fairness for borrowers and set the mortgage prisoners free.
“Given this (the fact that those with mortgages taken out prior to 2007 and have been able to pay their mortgage for over a decade), it makes no sense to have a computer driven affordability test that ignores what’s been happening in the real world. The Treasury and the regulators at the FCA need to move past ‘computer says no’ to ‘reality says yes’.
“What should happen is that these borrowers should be treated as grandfathered against the later regulatory rules that came in.
“Banks should be required by the FCA to offer mortgage prisoners a decent deal and treat them as grandfathered – whether they are an existing customer or not – and the new mortgages should be permitted without any regulatory penalty for the bank they move to.
“The Treasury needs to take responsibility, too. The Treasury has been selling Northern Rock’s loan book to funds like Cerberus.
“When selling these books they should make sure there are protections so that borrowers do not lose out. It is wrong for the Treasury to have allowed borrowers to be placed in a worse position than would otherwise have been the case.”
Ishaan Malhi, Chief Executive and founder of Trussle, said:
“It’s shocking that 200,000 people are trapped in an expensive mortgage and can’t remortgage to save money.
“This proposed bill will give hundreds of thousands of mortgage prisoners hope that they may soon have the ability to switch to a cheaper mortgage deal, a step in the right direction to making mortgages fairer.
“This group of people have been overlooked for too long and it’s crucial that the government step in to help by granting them an exemption to affordability rules.
“It’s worth mentioning that millions of people across the UK are currently overpaying on their mortgage because they’ve fallen onto their lender’s standard variable rate.
“However, unlike mortgage prisoners, they can switch to a deal that better suits their needs. This is why we are campaigning for a Mortgage Switch Guarantee, to make mortgage switching easier for borrowers and to ensure that lenders commit to greater transparency and address the loyalty penalty in the mortgage market.”
Would improved lending criteria lead to an increase in remortgaging? Are mortgage prisoners offered enough help? Do you think those with mortgages should be offered more guidance on how to save money?