FCA must act swiftly to help 140,000 mortgage prisoners, urges Treasury Committee

Mortgage prisoners are those unable to remortgage or switch to a cheaper mortgage rate due to changes in legislation following the financial crash.

Andrew Bailey, Chief Executive of the Financial Conduct Authority (FCA), has today written to Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, to provide an update on the FCA’s work on this issue.

Action has been taken by the FCA to help the 10,000 mortgage prisoners who are customers of active mortgage lenders, but there remains 140,000 customers of inactive lenders or firms not authorised to lend.

Commenting on the correspondence, Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee said:

“The Treasury Committee has consistently raised the problems of mortgage prisoners with the Government and the FCA.

“Under pressure from the Committee, the FCA has worked with industry and established a voluntary agreement, which allows most of the 10,000 mortgage prisoners of active lenders to switch to a better deal.

“Whilst help for these customers is a welcome step, there remain 120,000 mortgage prisoners with unregulated firms, and 20,000 with regulated but inactive firms. These customers are trapped on a far higher interest rate than is necessary through no fault of their own.

“The FCA has today announced that it will consult on changing its lending rules to allow such customers to switch to an active lender, with whom they may be able to get a better deal.

“The regulator must now act swiftly to help these 140,000 mortgage prisoners, and not use this consultation to kick the issue into the long grass. We will raise these issues when we take evidence from the FCA next week.”

Rushanara Ali MP, Member of the Treasury Committee, said:

“The FCA appears to be taking steps in the right direction to ensure that mortgage prisoners aren’t stuck making higher-than-necessary mortgage payments.

“Whilst there is clearly more work to be done by the regulator, industry also has a vital role to play. As Mr Bailey said, firms need to be willing to offer re-mortgaging opportunities to these customers once the regulatory barriers are removed. I hope the FCA will ensure the regulatory barriers are removed as soon as possible and that the FCA closely monitors the actions of the lenders in this regard.”

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Notes to Editors

• Mr Bailey’s letter to Mrs Morgan is attached.

• The Treasury Committee will take evidence from the FCA next week:

Work of the Financial Conduct Authority

• The FCA defines mortgage prisoners as ‘customers on a so-called reversion interest rate who would benefit from switching but are unable to do so, despite being up to date with payments on their existing mortgage.’

• John Glen MP, the Economic Secretary to the Treasury, recently wrote to the Treasury Committee about mortgage prisoners, acknowledging that “these borrowers find themselves in difficult circumstances”, and committed to continuing to explore potential solutions. The Economic Secretary wrote to Mrs Morgan on 12 November 2018 here. Commenting on the time, Mrs Morgan said:

“The Economic Secretary has acknowledged that mortgage prisoners are in a difficult and stressful situation, and the FCA has said that helping mortgage prisoners is a matter of urgency.

“Time is clearly of the essence. People are trapped repaying their mortgages on a far higher interest rate than is necessary through, as the Economic Secretary said, no fault of their own.

“Whilst the FCA has said it can help a few thousand mortgage prisoners – those with authorised lenders – this does nothing to help the 140,000 customers with inactive lenders.”

Rushanara Ali MP, Member of the Treasury Committee, said:

“The Government and the FCA have found an answer for customers of active firms. They must now be bold and innovative in finding a swift solution for mortgage customers of inactive firms.

“The Committee will continue its work on this and keep a watchful eye on the Government and regulator’s actions.”

• The Economic Secretary gave evidence to the Committee on 30 October and was asked about mortgage prisoners. The transcript is here.