UK Finance, the Building Societies Association and the Intermediary Mortgage Lenders Association have announced a commitment to helping borrowers tied to reversion rates switch products.
The agreement, which covers 59 authorised lenders representing 93 per cent of the UK residential mortgage market, comes after the Financial Conduct Authority’s Mortgages Market Study report identified a number of borrowers “who are on a reversion rate, are up-to-date with repayments and would benefit from switching to a new deal but cannot do so.”
The FCA identified 150,000 of these mortgage ‘prisoners’, 10,000 of which are with active lenders, and it is within this latter group that the agreement will focus on. Of the remaining borrowers, UK Finance director of mortgages Jackie Bennett says: “We will be working closely with the FCA and active lenders to see what might be possible for customers of inactive and unregulated lenders.”
If one of the 10,000 borrowers is:
- a first charge owner-occupier
- an existing borrower of an active lender
- on a reversion rate
- looking for a like-for-like mortgage
- is up to date with payments
- has a minimum remaining term of two years
- has a minimum outstanding loan amount of £10,000
and is able to benefit from switching, they will receive a letter from their lender by the end of this year.
Bennett says: “Lenders have responded to the FCA’s challenge and made a voluntary commitment to help these longstanding borrowers, offering them the ability to switch to an alternative product if they meet the agreed standard criteria – a potential solution that covers 93 per cent of the residential mortgage market. We expect more lenders to participate in the coming months.”
BSA head of mortgage and housing policy Paul Broadhead adds: “By signing up to this voluntary agreement lenders will ensure that existing borrowers are not disadvantaged by the changes to mortgage regulation since the financial crisis. The agreement formalises the actions that many societies have been taking and provides clarity and confidence for all affected borrowers.”
IMLA executive director Kate Davies comments: “It [the FCA’s report] noted that some improvements could be made for the minority groups who find themselves unable to switch products, as a result of regulatory changes brought into effect since they took out their loans. This initiative will help a number of those borrowers, and further work is planned to address the needs of others.”