FCA Urges Lenders to Support UK’s 47,000 ‘Mortgage Prisoners’

FCA Urges Lenders to Support UK’s 47,000 ‘Mortgage Prisoners’

The FCA asks banks to offer support to mortgage prisoners.

The FCA has urged banks and construction companies to consider changes in loan criteria to help some 47,000 borrowers who could benefit from a cheaper home loan but are currently unable to move.

A review of “mortgage inmates” by the Financial Conduct Authority found that there were about 195,000 households whose debts had been sold to dormant lenders and that a quarter of them could save money if they were allowed to switch to a new deal.

However, despite changes that have made it easier for banks to offer home loans to these borrowers at a rate better than what they are currently paying, the FCA found that demand from customers and supply from lenders has been low.

“We hope that more mortgage inmates will be able to change their mortgage,” the FCA said. “We encourage lenders to consider whether they can modify their loan criteria to lend to mortgage inmates who are close to their risk appetite.”

The review looked at the position of borrowers whose loans were sold to new lenders after the financial crisis. At the last count, it found that about 250,000 borrowers were affected, but the number has decreased as some borrowers have been able to move out.

Initially, the borrowers were in banks such as Northern Rock and Bradford & Bingley, which failed during the crisis.

Many had taken out interest-only mortgages, some had self-certified their income rather than having to prove it, and some borrowed more than 100% loan-to-value (LTV).

After the crash, they moved to lenders who were not offering new deals, so they weren’t given the same opportunity to move on to lower rates than if they were with an active lender.

The FCA said that about 47% were paying an interest rate between 3% and 5%, compared to 17% of borrowers with active lenders, while 3.3% were required to pay interest at more than 5%, compared to just 0.8% for other borrowers.

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