Banks and building societies are urged to consider changes to their lending criteria to help 47,000 borrowers who could benefit from a cheaper home loan but are currently unable to move.
A study of mortgage prisoners by the Financial Conduct Authority found that there were around 195,000 households with debts that had been sold on to inactive lenders and that a quarter of them could save money if they were allowed to switch to a new deal.
The FCA has found that demand from customers and supply from lenders has been low despite changes that have made it easier for banks to offer home loans at a better rate than the one they are currently paying.
The FCA said more mortgage prisoners would be able to switch their mortgage. We encourage lenders to consider changing their lending criteria to lend to mortgage prisoners who are close to risk appetite. After the financial crisis, the review looked at the position of borrowers whose loans were sold on to new lenders. About 250,000 borrowers were affected at the last count, but the number has fallen as some borrowers have been able to move.
The borrowers were initially with banks such as Northern Rock and Bradford Bingley, which failed during the crisis.
Many had taken out of interest-only mortgages, some had self-certificated their income rather than having to prove it, and some took on loans of more than 100% loan to value LTV After the crash, they were moved to lenders that did not offer new deals, so were not given the opportunity to move to lower rates than if they were with an active lender.
The FCA said that 47% of borrowers are paying an interest rate between 3% and 5%, while 3.3% are locked into paying interest at more than 5%, compared to just 0.8% of other borrowers.
Of the 195,000 cases the regulator looked at, 66,000 may be able to switch to another lender without difficulty, 30,000 could not switch because the interest rate they were paying was competitive and 34,000 were behind on payments or close to the end of their term so would not be able to switch even if they were with an active lender.
The remaining 47,000 were up to date with payments but were unable to switch because of their mortgage or circumstances that would deter a lender.
Gemma Harle, managing director of Quilter Financial Planning, said mortgage brokers from the company have been trying to support borrowers, but without lender support and a proliferation of mortgage products aimed at these customers, it is going to be hard to move these people into more suitable products, regardless of financial advice. The FCA s review will now be looked at by the Treasury and lenders.