Britain’s six biggest lenders have come under fire from ministers this week as the row regarding thousands of ‘mortgage prisoners’ continues to escalate. Treasury ministers issued an open letter accusing the banks of failing to help hundreds of thousands of struggling borrowers get a fair deal on their overinflated mortgages.
Britain’s six biggest lenders have come under fire from ministers this week as the row regarding thousands of ‘mortgage prisoners’ continues to escalate. Treasury ministers issued an open letter accusing the banks of failing to help hundreds of thousands of struggling borrowers get a fair deal on their overinflated mortgages.
New rules were introduced by the UK’s financial watchdog in October last year, designed to simplify the process of switching to a cheaper mortgage for those affected. Four months down the line, no decisive action whatsoever has been taken by any of the six leading lenders in the UK: Lloyds, Nationwide RBS, Santander, Barclays, and HSBC.
Even more worryingly, the new rules will result in only one in 12 so-called ‘mortgage prisoners’ benefiting from a lower-rate deal.
Half a million homeowners were affected.
It is estimated that around 500,000 homeowners across the UK were affected by the sale or transfer of their mortgages to unregulated or inactive lenders in the wake of the financial crash. This subsequently resulted in their mortgages being taken over by a fund or company that cannot or will not offer them a remortgage.
Unable to get a better deal with their loan provider and unable to switch to a new lender, these borrowers have become ‘imprisoned’ by excessively expensive mortgage deals they simply cannot afford. The FCA announced new rules in October last year that would make it easier for those affected to switch to a better deal, but so far nothing has happened.
None of the six biggest lenders in the UK have altered their affordability rules to accommodate those looking to switch to a more affordable mortgage. The government has therefore once again demanded that urgent action be taken by the country’s leading banks to comply with the new rules outlined by the FCA.
‘I have discussed this with Andrew Bailey, chief executive of the FCA, and he is in agreement that these eligible borrowers should have the opportunity to access cheaper deals with new lenders,’ read the open letter written and published by the economic secretary to the Treasury, John Glen MP.
‘Now that the FCA rule changes are in effect, I expect as many of your members as possible to move quickly to offer new deals to this group of eligible borrowers.’
Would the changes actually help?
The FCA has predicted that approximately 170,000 of these ‘mortgage prisoners’ will be able to reduce their mortgage payments by seeking a better deal from a new lender. Unfortunately, the FCA also estimates that no more than around 14,000 of these borrowers will benefit from the new rules and regulations, should they be implemented.
In total, around 156,000 of the borrowers affected have mortgage debts that exceed the market value of their home. As these borrowers are, in effect, in arrears, they would not be eligible for a new mortgage or a remortgage with most lenders.
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