FCA Looking to Relax the Rules on Mortgage Prisoners

The FCA is currently undergoing a review to assist those classified as ‘mortgage prisoners.’ These are households that are not necessarily looking to move home, but are tied into their existing rates with their existing providers and cannot change.

The group of mortgage prisoners they are referring to includes 10,000 borrowers with an authorised firm trapped on a rate, 20,000 with authorised firms who are no longer lending, and 120,000 who are with firms not authorised to lend.

The FCA is looking to introduce a ‘modified assessment’ which is a must softer version of an affordability assessment usually carried out when applying for a mortgage. This soft approach would only be available to homeowners who are already up-to-date on repayments, are not looking to borrow more money or looking to move. However, fundamentally, this modified assessment could make the mortgage holder eligible for a lower, better and more flexible mortgage rate through remortgaging.

Specifically, the FCA says that during a modified assessment, the lender could go outside the rules that require lenders to traditionally verify a customer’s income and expenditure.

Regarding interest-only mortgages, the proposed modified assessment would allow a lender to ignore the rule that asks for a customer to have a credible repayment strategy, although the lender would still need to contact the customer during the term of the mortgage.

The FCA is also proposing that those moving home, such as downsizers, should be able to change to a new mortgage deal via the modified assessment – and hence, get access to a better mortgage deal. The consultation will end on 26 June 2019.

At the same time, the FCA has announced that it will be putting together a new non-bias intermediary comparison site for mortgages and pensions. The new website will be designed to remove any bias between existing comparison websites and their partners and instead showcase all the lenders and providers in the financial services industry, increase transparency and improve competition.

The project will be known as The Money and Pensions Service and will undertake discovery work during Q2 and Q3 to scope the project and establish exactly what information will be presented on the directory and in what format.

On a consumer level, the FCA is currently investigating high costs industries including car finance and unauthorised bank overdrafts. Earlier this month, the City Regulator announced a price cap in the high cost rent-to-own industry, something that has caused the most vulnerable in society to overpay for basic household goods and items.