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Consumer panel wants FSA rules to help mortgage prisoners

The Financial Services Consumer Panel is calling for the Financial Services Authority to introduce specific rules to help mortgage prisoners.

In its response to the Mortgage Market Review final consultation paper the FSCP calls on the regulator to strengthen transition arrangements as it believes many borrowers whose current mortgages may fall foul of the proposed new rules will need help if they attempt to re-mortgage.

The vulnerability of mortgage prisoners has been highlighted recently following the increase in a number of lenders’ SVRs. The FSCP believes that the FSA should introduce a new rule specifically to protect these consumers.

The FSCP also believes that unless the FSA is fully confident on the basis of solid empirical evidence that consumers would not be harmed by prompt implementation, the new responsible lending requirements for the whole market should not be brought into effect until the housing market has demonstrably recovered.  

It adds that the potential for the MMR proposals to further restrain lending at a time when underwriting standards are already tight would be detrimental to consumers.

Adam Phillips, chairman of the FSCP, supports stronger regulation and praises the FSA for listening to consumer groups in the MMR process.

He says: “We still have some suggestions for improvements but overall we are very pleased with the FSA’s proposals and the progress made from the initial consultation.  The FSA must be praised for having listened to both industry and consumer groups.

“However, we remain extremely concerned that many people, in particular those affected by the recent rises in lenders’ SVRs, will find the increase in their monthly mortgage repayments financially challenging.

“These increases are inconsistent with the principle of Treating Customers Fairly and could be addressed if the FSA were to consider introducing a new rule as we suggest.  Otherwise significant numbers of consumers stand to suffer detriment.”

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  • GHU 5th April 2012 at 4:33 pm

    “Mortgage Prisoners”? I’m glad that no-one uses emotive language anymore!! In the early 1990’s there were borrowers with massive negative equity struggling with double digit interest rates. Now there were people I felt sorry for.

  • We're all doomed!! 5th April 2012 at 9:32 am

    I think you will find, anon 04/04 2pm, that the vast majority of these customers have been advised. In reality, the High Street lenders direct arms have relatively low levels of non-advised sales.

  • Jeff 5th April 2012 at 9:30 am

    RE: Anonymous | 4 Apr 2012 2:00 pm

    are you trying to kid yourself?

    Given the proportion of lending via brokers during the boom years which is when nearly all what would be classed as prisoners obtained their mortgage most prisoners will have had their mortgage arranged by a broker.

    If only those that went direct are prisoners that would mean that less than 10% of the market are prisoners. If thats the case what are we worried about….

    I think it’s time brokers posting on these forums realise that a huge percentage of brokers are only on par in standard terms (here is a countrywide table – i’m sorting it by rate ignoring fees here is your best bet) with mortgage advisors from lenders and its not a broker always gives good advice, lender bad situation.

    Yes a good IFA does is the best route to a mortgage but you have to stop pretending all brokers are divine and all lenders are mud and insinuating everything is the lenders fault. In shear volume terms more bad mortgages options must have been arranged via introducers

  • Phil 4th April 2012 at 2:00 pm

    In response to Adam Phillips comments yesterday
    I wonder how many of these customers took advice and how many were non advised by the lenders?

  • Flo 4th April 2012 at 1:56 pm

    Seconded.

    The optional nature of the Transitional Provisions makes them a total joke.

  • Pat Bunton 3rd April 2012 at 3:16 pm

    I couldn’t agree more with the FSCP on this

    The so called ‘interest only ticking time bomb’ and the wider demonisation of interest only has been an interesting issue arising from the MMR CP process. Yes there is a problem for some in this area, but it pales into insignificance when compared to the ‘ticking nuclear bomb of mortgage prisoners.’

    The MMR CP is good in many ways, but the late transitional provisions that were added are I am afraid wholly inadequate to protect vulnerable consumers.

    FSCP highlights a few lenders who have increased SVR, just wait until the explosion when BOEBR rises and consumers don’t have the ability to vote against high interest rates with their feet – especially pertinent given the record levels (in recent history) of borrowers currently sat on lenders low SVR’s.

    Some degree of compulsion with regards to the application of Transitional Provisions to pre MMR customers is needed, without that lenders will be able to do what they like, safe in the knowledge that their ‘captives’ have no option but to cough up – this aspect really does need further thought and work from FSA.

  • Pat Bunton 3rd April 2012 at 2:37 pm

    I couldnt’t agree more with the FSCP.

    So much has been written and over stated about the ticking time bomb of interest only. This is however nothing when compared to the ticking time bomb of mortgage prisoners – a huge bomb that may well explode when BOEBR does rise.

    The MMR CP is very light on transitional provisions detail and lacks a much needed requirement for lenders to also take into account the interest of existing customers – without this they may just be left high and dry and captive where they sit.

    Not a great place to be at any time, especially not a time when rates are rising and you are left unable to remortgage away to a better deal – FSa should not ignore this very real future threat.