Mortgage prisoners were a key focus of the FCA’s interim market study report, identifying 10,000 borrowers with active authorised lenders in this position.
This perhaps was less than many expected but it remains an important task to combat this unintended consequence of regulatory reform.
Efforts to reduce those trapped over the past few years have had some impact, with specialist lenders providing flexibility when assessing the self-employed – those most vulnerable to be caught out.
Products, including Aldermore’s own remortgage product, have also been designed with mortgage prisoners in mind.
But to truly address this problem it needs industry-wide cooperation, and that’s what we now have.
Action by end of year
The cross-industry commitment, launched by UK Finance, the Building Societies Association (BSA) and Intermediary Mortgage Lenders Association (IMLA), takes a big stride in aiding those stuck on reversion rates.
It is most welcome to see the majority of lenders react so positively to the challenge, agreeing to offer the chance to switch products to home owners currently paying reversion rates who meet the criteria by the end of 2018.
We are delighted to see this initiative and, alongside the majority of lenders, we have signed up to the commitment.
Helping people inadvertently impacted by stricter affordability rules to find the best deal for them is an example of how we can deliver banking as it should be.
This is a strong first step but there is more work to be done going forward and we will work with UK Finance to help figure out solutions to these issues.
Inactive and unregulated lenders
Next, we will need to see what can be done to help the 20,000 with inactive lenders and the 120,000 with unregulated mortgage owners, who the FCA also identifies as mortgage prisoners.
And there are the 800,000 borrowers who remain on reversion rates for over six months despite appearing able to and likely to benefit from switching.
Of course, the cheapest rate is not always the best rate depending on individual circumstances and preference, but making sure systems are working so customers are fully informed of all their options is something every lender will need to consider.
It is welcome and reassuring that the regulator acknowledges the mortgage market is working well for the vast majority of people.
In order to begin to resolve issues for the minority where it isn’t, it is important that lenders strike a fine balance between risk and flexibility, and ultimately act in the customers’ best interest.