Mortgage prisoners will be set free, if a bill presented to parliament by MP for Dover and Deal Charlie Elphicke goes ahead.
Elphicke presented 10-minute bill to the House of Commons yesterday and the bill is due to receive its second reading today. He’s calling for computer driven affordability tests to be ditched in favour of “grandfathering” affected borrowers against later regulatory rules.
This exemption would allow mortgage prisoners to switch lenders without meeting the affordability assessment brought in by new regulations. The mortgage would also be permitted without any regulatory penalty for the bank.
There are about 200,000 mortgage prisoners who have become trapped by changes in mortgage regulation following the financial crash.
Writing on ConservativeHome.com, Elphicke says: “They are stuck in expensive mortgages and unable to remortgage to get a better deal. The new regulations say they can’t afford payments on a mortgage at say 2 per cent, so they are forced to continue with a mortgage paying 5 per cent or more. It’s plainly absurd and unfair.”
Elphicke used several cases to highlight the situations mortgage prisoners are in. These include the case of a couple in the West Midlands who took out a Northern Rock mortgage in 2007, have never missed a payment, but cannot remortgage due to the regulators’ affordability test.
Another Northern Rock customer called Jane took out a Northern Rock mortgage in 2007 and is now paying nearly 5 per cent interest on a variable rate. Her mortgage has since been sold to Cerberus by the Treasury. Her self-employed status makes remortgaging tricky as her fluctuating income means she fails affordability tests for cheaper mortgages.
Elphicke says: “These cases – and many others beside – highlight the situation Britain’s mortgage prisoners find themselves in. The Government should be lending a helping hand, not a tin ear. The Treasury should not be selling mortgages off to vulture funds like Cerberus without protection. The regulators should be doing their bit to help free the mortgage prisoners.”
There have already been some moves made by regulators and trade bodies to help mortgage prisoners, but Elphicke says these don’t go far enough.
In March the FCA announced plans to consult on a “modified affordability assessment” for mortgage prisoners. But the FCA proposals only give lenders the option to adopt this approach – it wouldn’t be mandatory.
Last summer saw UK Finance launch a voluntary agreement in which lenders committed to support existing mortgage prisoners to switch to an alternative product at their present lender. But this doesn’t help people stuck with lenders who no longer lend, or with so-called “vulture funds” that have bought loan books.
Trussle chief executive officer Ishaan Malhi says: “This proposed bill will give hundreds of thousands of mortgage prisoners hope that they may soon have the ability to switch to a cheaper mortgage deal, a step in the right direction to making mortgages fairer. This group of people have been overlooked for too long and it’s crucial that the Government step in to help by granting them an exemption to affordability rules.”