Mortgage prisoners: You may escape ‘illogical’ deals under FCA plans – are you eligible?
Mortgage prisoners have been facing a tough time for a while now. In March 2019, the FCA released a study that estimated that around 140,000 borrowers were stuck in their current mortgage deals, potentially missing out on better options.
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To try and rectify the problem, the FCA set up an “Industry Implementation Group” to help lenders implement the new modified assessments.
These changes were expected to help lenders, intermediaries and administrators come together for the benefit of consumers but the regulator reported poor levels of engagement.
In January 2020, the FCA detailed that: “While medium and small lenders have been engaged with the Implementation Group, there has been disappointingly little interest or engagement from the major mortgage lenders.”
Fortunately, work continued on this problem and the FCA have made fresh efforts to boost support.
Last week, the FCA called for mortgage intermediaries to help mortgage prisoners.
They detailed that mortgage intermediaries have a “key role to play in supporting the customer journey, from borrower’s first learning of the option to switch, to finally being able to apply for a new mortgage.”
Under new rules set out by the regulator, mortgage administrators are required to contact eligible customers by December 1 2020.
The contacted customers will be able to access a list of mortgage intermediaries who will work with them and provide the support that they may need.
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To be on said list, an application must be put through.
Would-be applicants must hit the following customer focused criteria to be eligible:
- They must be able to access mortgage options that represent the whole of the market
- be able to advise on later life options or have a relevant referral route
- be able to advise on debt consolidation or have a relevant referral route
- not charge a fee until an application is submitted to a lender (the fee may be added to the loan)
- collect and share with the FCA relevant data on the support they have provided
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Intermediaries wanting to commit to this plan must inform the FCA of their intentions by August 6 but some have already expressed their support.
Gemma Harle, the Managing Director of Quilter Financial Planning, commented on the FCAs plans: “Covid-19 has had a dramatic impact on the nation’s finances, and many will find themselves struggling to make ends meet in this challenging time. But for many mortgage holders who are trapped paying over the odds, the ramifications of the last crisis are still being felt as they are unable to switch to a better deal thanks to the affordability rules introduced in the wake of the 2008 crisis.
“What the rules are effectively saying is that these borrowers cannot afford to pay less each month. This is illogical, and Quilter is ready to support these customers throughout the entire journey, to help them find a better deal or guide them to other solutions and debt advice if necessary.
“But the elephant in the room remains. The FCA’s new rules will only be effective if lenders are willing to apply the new assessment and offer a product for mortgage prisoners to allow them to switch. In the current economic environment, where many high-street banks have been forced to set aside considerable amounts of capital for impairment losses, it is unlikely they will be making the changes anytime soon.
“However, all is not lost for this group. In some instances, there may be scenarios that people think they are mortgage prisoners, when in fact there are other options available.
“This group should never have been put into this position and it is unthinkable they remain in it. We will do as much as we can to support people harmed, but lenders and the regulator need to work together to help as far as they possibly can and ensure this never happens again.”
Similar sentiment was shared by Gail Smyth, the Principle and Founder of Charles Mac: “This is an issue close to my heart having worked closely with groups campaigning on behalf of mortgage prisoners over the past few years. Time and time again we hear devastating stories of the financial and emotional impact of being a mortgage prisoner and it is not right that this is allowed to continue.
“Advisers are well placed to do the heavy lifting for mortgage prisoners and offer potential solutions.
“We are supportive of the FCA’s call for intermediaries to support mortgage prisoners and believe the eventual list should be compiled based on location, so that clients are working with brokers that really know their area in terms of property values and other criteria.”
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