The Financial Conduct Authority (FCA) published the review of data on mortgage prisoners and this review has been laid before the UK Parliament. FCA defines a mortgage prisoner as a borrower who is up to date with payments and is unable to switch to a new mortgage deal (with a new lender or with their existing lender) and could potentially benefit from switching depending on their loan and borrower risk characteristics. The reasons that mortgage prisoners are unable to switch are complex; thus, understanding the data is crucial in progressing work in this area. The review provides the key insight necessary to do this, with the government planning to use the findings of the review to determine if there are any further practical and proportionate solutions that can be found for affected borrowers.
The review is based on regulatory reporting data from firms on the status of mortgages at June 30, 2021, credit referencing data, and qualitative evidence from key stakeholders. The review includes a summary, for context, of the reported characteristics of the wider population of borrowers and mortgages in closed books with inactive firms compared to reported characteristics of borrowers and mortgages with active lenders (Annex 1). It also includes an up-to-date estimate of the number of mortgage prisoners in closed books with inactive firms and their loan and borrower characteristics (Annex 2). Of the 195,000 borrowers who have mortgages in closed books with inactive firms, FCA estimates that 47,000 are mortgage prisoners. Despite being up to date with payments, they cannot switch when it might benefit them to do so, because they have loan and/or borrower characteristics that are outside current lender appetite. The review also looks at recent actions of FCA to remove regulatory barriers to switching to make it easier for lenders to lend to mortgage prisoners. These are the modified affordability assessment and the intra group switching rule (Annex 3).
Additionally, the review provides a summary of the background to the issue of mortgage prisoners (Annex 4), along with a breakdown of the data gathered from mortgage intermediaries (Annex 5). FCA encourages lenders to consider if they can amend their lending criteria to lend to mortgage prisoners who are close to their risk appetite. Other mortgage prisoners who continue to lie outside the risk appetite of lenders may be able to take steps, with the help of consumer organizations or a debt advice charity, to improve their chances of switching to a better deal in the longer term. The government and industry will use this review to consider if there are further practical and proportionate solutions for mortgage prisoners. FCA will continue to support them to do this and will focus on the areas in the market that could affect mortgage prisoners and other borrowers. In particular:
- ensuring firms provide all mortgage borrowers (in both closed and active books) with the support they need when they get into financial difficulty
- carrying out work to further understand the issues facing borrowers (in both closed and active books) who have interest only or part repayment mortgages
- supervising and enforcing guidance for firms on the fair treatment of vulnerable customers, to help ensure fair outcomes for customers with characteristics of vulnerability
Keywords: Europe, UK, Banking, Mortgage Prisoner, Credit Risk, Lending, Consumer Lending, Mortgage Lending, FCA, HM Treasury
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