Speaking before the Treasury Select Committee, Andrew Bailey said that the “bonkers” rules of the European Union’s (EU) Mortgage Credit Directive prevent some borrowers from moving to a cheaper deal at a different lender.
Around one million borrowers are believed to be mortgage prisoners. Last year Robert Sinclair, chief executive of the Association of Mortgage Intermediaries – which had been lobbying for more help for such borrowers – said that action may only materialise when an interest rate rise takes place.
“Let’s say you’ve got a mortgage today and you want to refinance it at a lower cost. You can refinance it in a firm and escape the traps of the EU Mortgage Credit Directive,” explained Bailey.
“If you go to another lender you have to have an affordability assessment and the interpretation of the directive is that if you fail the test for the new mortgage you can’t move.”
Bailey described this as “bonkers” as “if you fail the new one then by definition you must be failing the current one, and the new one must be cheaper than the current one because why else would you be going there?”
While the Treasury and the regulator felt they had been making progress on getting this changed, the Brexit vote had undermined that, Bailey said, adding: “It is very difficult in the current world to run a UK-specific argument in Europe.”