AMI: Lenders and FCA still failing mortgage prisoners

Prison lock

Brokers have rallied around the Association of Mortgage Inter­mediaries in calling for lenders and the FCA to overhaul how they treat mortgage prisoners.

The issue resurfaced last week in AMI’s latest quarterly economics bulletin.

The bulletin says: “AMI is strongly of the view that lenders and the FCA continue to fail mortgage prisoners, refusing to acknowledge those who have no options when wishing to remortgage when they are conducting assessments to measure the so-called success of the MMR.

“We believe the agenda is now shifting and others share AMI’is view that a wave of invisible mortgage prisoners exists and these ostracised borrowers require better support from mortgage providers.”

AMI believes there are up to one million UK mortgage prisoners. It adds: “Borrowers in the areas of interest-only, lending into retirement, self-employed, contract workers, foreign currency earners and ex-pats still need attention if the market is to serve the whole.”

The MMR does have provisions for lenders to waive affordability checks to avoid creating mortgage prisoners, but in practice many lenders ignore these.

Brokers agree that the issue of mortgage prisoners needs more attention.

John Charcol senior technical manager and Ami board member Ray Boulger says: “The problem about this, as perceived by the AMI board, is a failure of the FCA to realise the scale of the problem.”

Boulger says the issue is not helped by the fact that lenders are commercially biased towards keeping borrowers on SVRs with relatively high interest rates.

Boulger thinks the regulator can take action to tackle the issue of mortgage prisoners but has restricted options.

He says: “What the FCA can do is very limited; it cannot force lenders to lend. What it can do is make it easier for those that want to lend to accept an application. It could send a ‘Dear CEO’ letter to make it clear to lenders that it would be very comfortable if lenders applied a different affordability test to customers who are remortgaging.”

Coreco director Andrew Montlake says: “It’s a big problem. There are still lots of people out there who, because of the way the market has moved – whether they are self-employed, on interest-only mortgages, etcetera – are struggling to remortgage.

“There is often nowhere these borrowers can turn to. They are at the mercy of their existing lender and they cannot vote with their feet.”

London Money director Martin Stewart says: “It is a massive issue.

“But being a mortgage prisoner is not always the end of the line. Brokers can help, by thinking laterally.”

An FCA spokeswoman says: “Some firms could be more proactive and consistent in making use of flexibilities and exceptions to the responsible lending requirements for existing customers. However, we found no evidence that the rules have prevented firms lending responsibly to consumer groups such as older borrowers and the self-employed.”

A Council of Mortgage Lenders spokesman says: ““In its responsible lending review, the FCA looked specifically at how lenders are applying permissive powers allowing exceptions for customers wanting to change their mortgage. It concluded that lenders were generally making good use of the flexibility allowed to them, and this is borne out by feedback from our own members.”

A Building Societies Association spokeswoman says: “Our view is and has always been that, under the MMR transitional arrangements, there is no reason why a lender should not allow an existing borrower to remortgage provided that they are not looking to borrow more and are staying with the same lender and in the same property.”