‘Mortgage prisoners’ are borrowers who are unable to switch their mortgage to a more competitive interest rate.
For some, this will be due to changes in their personal circumstances. But for many others, it’s because they’re tied into a mortgage with an inactive or unregulated lender*, who cannot offer them any alternative to their standard variable interest rate.
In October 2019, the Financial Conduct Authority (FCA) published changes to its mortgage responsible lending rules. The rules introduce a new scheme which encourages inactive lenders and unregulated entities to help eligible borrowers switch to a more competitive interest rate. This is achieved by using a ‘modified affordability assessment’.
Currently, the eligibility criteria is as follows. The borrower must:
- have a current mortgage
- be up to date with their mortgage payments
- not want to borrow more, other than to finance any relevant product, arrangement or intermediary fee for that mortgage
- be looking to switch to a new mortgage deal on their current property
It should be noted that these criteria may be subject to change.
If you are a ‘mortgage prisoner’ and you are eligible for the new scheme, you should be notified by your mortgage lender within 10 months of the new scheme being in place.
However, lenders will not be compelled to offer this service. Whilst an inactive lender needs to make its previous clients aware that they are eligible for the scheme, existing lenders in the current mortgage market are not obliged to offer it. Those lenders which do wish to take part in the scheme should be up and running with their offering by April 2020.
Alternatively, instead of waiting to be contacted, you may be able to access the scheme via a mortgage adviser, and you’ll be allowed to add any adviser fees to your mortgage. At Ash-Ridge we arrange mortgages for no adviser fee.
If you would like to check your eligibility, or be updated on progress and informed when lenders come on board (plus the rates they are offering) please let us know using our contact form.
*An inactive lender could be a bank which sold off its loans to another institution. Recent examples include Northern Rock and Bradford & Bingley. An unregulated lender may have provided mortgages before mortgages were regulated by the FCA, and therefore can’t offer more competitive rates as they’re not authorised to lend money. Or they may be ‘Zombie Lenders’ which have purchased a ‘book’ of mortgages from a regulated lender in order to collect the repayments, but are not lenders in themselves.
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