Coronavirus: many mortgage prisoners trapped on expensive deals for three more months
Lenders are "not yet in a position to offer new options to borrowers"
4th May 2020 11:55
by Brean Horne from interactive investor
Lenders are "not yet in a position to offer new options to borrowers".
Mortgage prisoners who are trapped on expensive deals might be unable to switch for at least three more months, following a move from the Financial Conduct Authority (FCA).
A mortgage prisoner is a homeowner trapped on an expensive mortgage deal and unable to get a cheaper rate with other lenders because they do not meet the FCA's new affordability checks.
The financial regulator previously lenders they had to contact mortgage prisoners by 1 September 2020 to tell them their options, including cheaper homeloans they might be able to move on to.
But now the number of mortgages on the market - including cheap ones - has dried up, and the FCA has extended the deadline until December 2020.
An FCA statement says: "Realistically, the current economic conditions mean that lenders are not yet in a position to offer new options for borrowers.
"Our rules, based on pre-coronavirus conditions, require firms to write to those who may be eligible letting them know they may be able switch their mortgage. However, given lenders’ inability to offer new switching options to mortgage prisoners it would be wrong to require letters to be sent to consumers at this time."
Since the beginning of March lenders have removed a large number of products for all customers due to the coronavirus pandemic.
Protecting borrowers on variable rate mortgages
The FCA has written to mortgage lenders to ensure high-risk borrowers on variable-rate mortgages are treated fairly.
Lenders have been encouraged to review their rates and treat customers fairly.
The watchdog warned it still step in if it sees lenders overcharging customers.
How many mortgage prisoners are there?
Around 140,000 borrowers are unable to switch to a better deal even though they were up to date with their payments, research from the FCA found.
To help support mortgage prisoners it changed its rules at the end of 2019 to allow lenders to assess affordability based on a borrower’s track record of making mortgage payments.
This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.
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