New FCA Regulations To Unchain Holders Of Mortgages From High Mortgage Rate Deals
30 Oct 2019
Approx Reading time: 3 minutes
The Financial Conduct Authority has removed regulations that bar mortgage prisoners from transferring their high mortgage rate product to another provider. Mortgage prisoners cannot meet the affordability criteria to switch their products, and thus, they are trapped paying high mortgage rates. The rates are substantially higher relative to the fixed rates that new customers receive.
Borrowers free from high mortgage rate mortgages
Earlier this year, the FCA consulted on the issue and came up with new regulations. The regulations require lenders to use different affordability criteria for new customer meeting specific conditions. The terms include not seeking to move house or borrowing more and being up to date regarding servicing of the current mortgage for around 12 months.
Therefore this new regulation is a relief for mortgage prisoners who will easily switch lenders. Before the new regulation, only the lender of the mortgage holder could have waived the tight affordability rules. Inactive lenders, as well as companies not authorized to offer mortgages, will have to inform customers of the changes. Equally, they have to inform them how easier it is to switch lenders, and they can receive an improved remortgaging deal elsewhere.
According to FCA's strategy and competition director Christopher Woolard, it is necessary to have responsible lending. The director said that unaffordable lending is very detrimental, and that is why they have removed the barriers of switching lenders. Woolard asserted that they expect lenders to make changes to their processes so that customers can get affordable mortgages. According to Woolard, lenders are trapping borrowers in very expensive mortgages, and the changes are befitting for consumers.
New regulations will only help a few mortgage prisoners
The FCA predicts that the move will be able to help 2,000 to 14,000 borrowers in switching to better deals. However, that will still leave over 100,000 mortgage holders with mortgages charging expensive mortgage rates. Currently, there are over 30,000 borrowers stuck with lenders who took mortgages over a decade ago before the introduction of tougher laws. This lot has stuck there because of the strict affordability criteria.
There are also around 120,000 customers who are stuck with lenders not authorized to offer new mortgages. As a result, these customers cannot remortgage. Therefore the change in regulations will only benefit a small percentage of mortgage prisoners in the UK. There is a need, therefore, to do more to free the over 100,000 prisoners stuck in such deals.
Mortgages have been expensive for borrowers for a while in the UK, says Mark Gordon, the director of Compare the Market. Customers have been paying high mortgage rates, leaving them stuck in uncompetitive products. Therefore the change in regulations will be a welcome to many across the country.
Mortgage approvals increase in September
Recently the Bank of England reported that approval of mortgages had grown to 65,919 in September. Analysts cited increasing rates of employment as the reason for the growing approval of new mortgages. According to Howard Archer of EY Item Club, the increases in approval of mortgages might have been a result of people rushing to make house purchases ahead of Brexit.