Why Britain's mortgage prisoners are facing 'unprecedented' levels of poverty - Greg Wright

Rachel Neale, the UK Mortgage Prisoners’ lead campaigner, said COVID-19 was a devastating extra burden for families who are already on the brink of ruin.

She added: “Mortgage prisoners are seeing unprecedented levels of poverty and are still unable to move.”

Ms Neale has welcomed the sympathetic comments made by the incoming Financial Conduct Authority chief executive, Nikhil Rathi, and his commitment to support mortgage prisoners who have been stuck with what the FCA describes as inactive lenders.

However, Ms Neale believes the conflation of inactive and unregulated ‘lenders’ is problematic as the harm experienced by those whose mortgages sit outside the regulatory perimeter is obscured.

Mortgage prisoners are defined by the FCA as borrowers who are up to date with payments but unable to switch to a new mortgage deal and, depending on their loan and borrower risk characteristics, are potentially paying more than they need to.

The FCA is consulting on new rules to help some borrowers in closed mortgage books to have more options.

The FCA said: “This issue has been exacerbated by the economic conditions created by coronavirus, which have resulted in lenders removing products from the mortgage market, leaving existing borrowers with fewer switching options.

“The adverse market conditions could have also made it more difficult for borrowers looking to repay the outstanding capital on their interest-only and part-and-part mortgages. The proposed rules would make it easier for borrowers in closed mortgage books to switch to a new mortgage deal with a firm in the same group as their current lender or firm.”

The proposed guidance would help borrowers who have a maturing interest-only or part-and-part mortgage and who are currently up to date with payments. These borrowers would have the option to delay repayment of the outstanding capital on their mortgage until October 31 2021.

Seema Malhotra MP, co-chairman of the All Party Parliamentary Group on Mortgage Prisoners, believes the FCA needs to change its guidance so that all interest-only customers are offered a full range of options at the end of their mortgage term.

She added: “The APPG has in the past called for banks to be forced to apply streamlined affordability tests when allowing mortgage prisoners to switch to better deals offered by the same banking group. The proposal from the FCA to allow firms to use a streamlined approach when a mortgage prisoner is switching within a larger group is welcome but the only way in which it is going to help mortgage prisoners is to make it compulsory.

“It would be naive to think that large banks and building societies which have exploited mortgage prisoners for years by holding them in separate subsidiaries or closed mortgage books will willingly offer better deals.”

“Unfortunately, what is glaringly missing here is any help for the tens of thousands who are caught with vulture funds, and who have no hope of accessing better deals with their existing provider unless the FCA intervenes to cap interest rates.”

Ms Neale welcomed proposals to relax affordability assessments for those whose mortgages sit within ‘closed’ subsidiaries of larger financial groups.

However, Ms Neale is concerned that these measures are not compulsory.

She added: “Nor do they help most mortgage prisoners who have no repayment vehicle and have kept up to date with payments for over a decade or have been pushed to the brink of financial ruin due to excessive rates.”

UK Finance has previously said it is working with its members, the FCA and Government to find solutions that help customers with mortgages provided by firms that are no longer active in the market.

The measures outlined by the FCA, although welcome, must go further. There must be a full-blooded attack on the vulture funds who are at the heart of this scandal.

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