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Mortgage prisoners: does more need to be done?

More needs to be done to help mortgage prisoners stranded on higher-rate products.

The FCA and lenders need to create more products to help those trapped in complex mortgages, say commentators.

While first-time buyers and remortgagers are taking advantage of rock-bottom rates on mortgage products, those with more complex needs are underserved by the market.

Association of Mortgage Intermediaries chief executive Robert Sinclair is concerned about the number of so-called mortgage prisoners in the market.

Many of these borrowers have interest-only loans or may have self-certified their income. Some have seen their income fall  or personal circumstances change since getting a mortgage. Other are still languishing in negative equity after the property market crash.

As a result, many of these homeowners don’t meet new affordability and stress-testing rules.

Sinclair says: “These borrowers are stranded on their lender’s SVR when they should be able to enjoy cheaper rates. But they are not offered as the lender knows they are a captive audience.”

It’s an issue Brightstar chief executive Rob Jupp is also concerned about.

He says: “This is a significant issue that hasn’t really been tackled. Maybe, with hindsight, they shouldn’t have had these mortgages in the first place. But they do have them and there should be a responsibility for the lender to help them.”

Rip-off rates

Advisers such as Jupp are concerned rates on offer to borrowers in simpler circumstances are not available to these mortgage prisoners.

He adds: “Lenders need to treat every consumer the same; this is not treating customers fairly, it’s ripping people off.”

DC Financial Solutions director David Clark says more products need to be brought to the market targeted at mortgage prisoners. He believes these borrowers should be attractive customers to lenders. The high proportion of equity they tend to hold in their property means they are relatively low risk.

He says: “But a lot of these clients are very difficult to place. Lenders are not falling over themselves to offer products to them, they don’t want the business.

“Moving from interest-only to repayment would cost too much, and even equity release doesn’t work for most. So they end up staying where they are and overpaying.”

John Charcol senior technical director Ray Boulger doesn’t believe lenders are actively penalising these borrowers though.

He says: “Lenders have a range of products, and you either qualify or you don’t. It’s important that advisers take into account a lender’s transfer proposition and revert products when choosing a deal for their clients, rather than just focus on the best two-year fix for example, because of issues such as this.”

Research carried out last year by the AMI found an overwhelming majority of advisers believe there is a mortgage prisoner problem in the market.

Sinclair adds: “We have long thought the FCA should do more to identify the scale of this issue and take action to protect these consumers. The regulator should encourage lenders to take a more positive and sympathetic approach.” 

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