The Treasury is investigating how to help hundreds of thousands of mortgage prisoners trapped on their deals following the Mortgage Market Review.
The Chancellor met with Money Saving Expert’s Martin Lewis today on the issue and other industry experts have been raising this with the Treasury.
The so-called ‘transitional arrangements’ written into the MMR allow lenders to waive affordability checks for existing borrowers who may be trapped by the rules 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.
Smaller lenders have generally been more willing to use the arrangements but big lenders have come under fire for not applying them, despite being publicly criticised by the FCA.
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.
MoneySavingExpert.com founder Martin Lewis says: “This is now being looked at at the top level. That isn’t a victory in itself but it certainly means that if there is an easy fix then I think there is a chance that it is happening. What we want is for people to have the ability to go to the best place in the market [for the best deal].”
Association of Mortgage Intermediaries chairman Pat Bunton, who has campaigned fiercely on this issue, says: “It is great George Osborne is taking an interest in this. There is a whole bunch of people who have been left stranded by lenders and the excuses now being given around MCD requiring an affordability test on every case is a joke. There is nothing that actually stipulates what that affordability test should be.”
Think-tank The Resolution Foundation estimates one in 10 borrowers could potentially be trapped on their deals, which it says works out at around 770,000 households.
The Treasury confirmed the meeting took place today, but it could not yet reveal the next course of action.