A cohort of willing brokers signed up with the FCA to help mortgage prisoners, in an initiative last summer where a letter was sent out inviting the borrowers to contact an adviser to review their options.
Ray Boulger, senior mortgage technical manager at John Charcol, said: “The question is, why didn’t more people come forward? It could be there’s not much benefit to them of doing so. Particularly for those who’ve been paying down repayment mortgages, the loans may be fairly small and so the benefit of a lower rate is smaller.”
About 80 per cent of mortgage prisoners are thought to be on rates of about four per cent.
The advisers signing up to the initiative agreed to offer fee-fee advice, and to provide data to the FCA on numbers of inbound calls received, fact finds conducted and applications submitted.
The number of borrowers contacting brokers were relatively small, while the proportion overall who have remortgaged or transferred is thought to be in the low teens.
“We need detailed research for a significant proportion of mortgage prisoners, to make it clear how many could get a useful benefit from remortgaging or, because of the size of the loan or credit situation, they would not do,” said Boulger.
He added it was surprising the situation had gone so far without the FCA having this information. “If you’re trying to help mortgage prisoners, obviously you need to understand who they are,” he said.
Long shadow
The FCA has classed about 250,000 borrowers as mortgage prisoners. The regulator will now further investigate their characteristics to understand what actions may be helpful.
Additional economic challenges arising during the pandemic are thought likely to see the number rise.
Charlotte Nixon, proposition director at Quilter, said: “It’s clear the FCA has good intentions to do the right thing by customers, but unless lenders can be more flexible, there is not much more we can do in the broker space.”
She said lending criteria had tightened during the pandemic.
“Of course lenders have their own risk appetite. But they are being picky at the moment, especially with first-time buyers and the self-employed,” Nixon said.
“We need to support customers who borrowed according to the rules before the financial crisis. During the early stages of the pandemic, we took our hats off to lenders as they made changes overnight to support borrowers. This now risks casting a long shadow over the sector,” she said.
Key Mortgage Advice, which offers options for older borrowers who may be eligible for retirement interest-only (RIO) or equity release, also welcomed the FCA’s next steps.
“The review of existing measures is important. With a significant cohort of mortgage prisoners being older borrowers, it is particularly frustrating to know that with the right specialist advice many may be able to benefit from a RIO or equity release mortgage, which might better meet their needs.
“We need to push forward and help these borrowers achieve the right outcome for their individual circumstances,” he said.
