Chancellor George Osborne has written to lenders urging them to help mortgage prisoners.
The letter follows last week’s meeting with MoneySavingExpert.com founder Martin Lewis on the issue.
Earlier this week, the FCA published a paper analysing the success of its lending rules following the Mortgage Market Review.
It concluded that the new rules had not stopped certain borrowers, such as those entering or in retirement and the self-employed, from accessing finance.
The regulator also said the “majority” of lenders were using the MMR’s transitional provisions, which allow for affordability checks to be waived to avoid borrowers being trapped on their deals.
However, Association of Mortgage Intermediaries chief executive Robert Sinclair refuted the FCA’s claim that there are no issues with mortgage prisoners. He said interest-only, lending into retirement, self-employed, contract workers, foreign currency earners and expats find it difficult to get finance at present.
The Chancellor has since written to lenders urging them to use the transitional arrangements to avoid the creation of mortgage prisoners.
He said: “Responsible lending is important from both a prudential and a consumer protection perspective. But it is also important that consumers are not prevented from accessing the financial services that they need and can afford.
“People seek to make changes to their mortgages for a variety of reasons. In the low interest rate environment of recent years many borrowers have looked to switch products to take advantage of lower rate deals. To facilitate this the FCA allows lenders to waive affordability assessment requirements where an existing customer wants to make a change to their mortgage and is not taking on additional debt.
“I am encouraged by the FCA’s findings that the majority of lenders are making use of this flexibility. I want to emphasise how important I consider this to be. It is vital that consumers who want to access a cheaper deal are able to do so. This will ensure that the mortgage market works well for both lenders and consumers.”
When the MMR was introduced, in April 2014, the regulator allowed lenders to waive an affordability assessment to stop borrowers being trapped on their existing deals. But the assessment can only be waived as long as the customer does not wish to borrow more money, there is no “material impact” on affordability and they have a good payment history.
The MMR allowed lenders to apply the rules to their own customers and customers coming from rivals. However, the Mortgage Credit Directive, which came into effect in March, dictates that lenders must apply an affordability test on borrowers who switch over from a rival, although borrowers staying with the same lender are not affected.
But experts stress that the directive does not state how lenders should conduct the affordability test for borrowers switching lenders.
Association of Mortgage Intermediaries chairman Pat Bunton says: “How can anyone argue that the mortgage you have been paying is unaffordable and therefore you can’t have it on better terms? The only people who benefit from that is the lender who keeps them on their back book and who offers them terms that aren’t as good because they know they can’t shop around.
“The only other way to deal with it is to force lenders to make their new business rates available to their back book customers, or to apply the same transitional provisions to new customers as they do for existing ones. This is the only way that the customer is not disadvantaged and it would appear that some are spinning the convenience of using for back book customers only as the issue being dealt with, that doesn’t even tell half of the story.”
The Chancellor’s letter to mortgage lenders: