Why the Government must smack down the lenders who fail to free the mortgage prisoners - Greg Wright

MPS are calling for swift and decisive action from the financial services sector to ease the plight of consumers who are unable to take advantage of historically low interest rates.

These mortgage prisoners are trapped into paying higher rates of interest to their borrower because they cannot meet affordability tests, brought in after the financial crisis, despite making payments on their current, higher interest rate mortgage.

This has caused particular problems for borrowers who have found their debt sold on to unregulated private equity firms that do not offer new mortgages or more affordable rates. The Government is finally placing pressure on lenders to tackle this injustice.

In a letter to Stephen Jones, the chief executive of UK Finance, City Minister John Glen highlighted the work being carried out by the Financial Conduct Authority to analyse borrowers whose mortgages are in closed mortgage books or owned by firms that are not regulated by the FCA.

The letter says: “The FCA have now published this data which shows that around 170,000 of these borrowers are eligible to switch under the new FCA rules, of which there are around 14,000 mortgage prisoners who are up to date with their payments, are likely to meet commercial lending criteria and who could benefit meaningfully from switching to a cheaper deal.

“I have discussed with Andrew Bailey, the chief executive of the FCA, and he is in agreement that these eligible borrowers should have the opportunity to access cheaper deals with new lenders.”

Mr Glen said he expected as many of UK Finance’s members as possible to move quickly to offer new deals to this group, adding: “The FCA rule changes lifted the regulatory barriers. I now expect lenders to take the lead in making a real difference to this group of borrowers.”

These strong words were welcomed by Kevin Hollinrake MP, of the All Party Parliamentary Group on Fair Business Banking (APPG), who warned that many lenders were doing nothing to help the mortgage prisoners, which is leaving many people in limbo.

He said: “It is deeply cynical to laud your corporate social responsibility policies and then refuse to implement guidance from the regulator.

He added: “It appears that some banks seem determined to evade their clear responsibilities to be good citizens.

“We call on the Government to intervene to force banks to do the right thing and to prevent any bank from selling off their loan books in future to unregulated vulture funds.”

Rob Cooper, of the ME Group, a provider of litigation funding, which is due to meet the APPG soon, said: “Typically those who are mortgage prisoners are in the lower earnings bracket and could ill-afford to be overcharged for ten years or more on their mortgage.”

UK Finance has said it “fully recognises the imperative” to consider practical ways to help eligible borrowers, “if possible a wider cohort beyond the 14,000 identified by the FCA” who are up to date with their payments, are likely to meet commercial lending criteria and who could benefit meaningfully from switching to a cheaper deal.

A UK Finance working group has been set up to take this forward and a wide range of lenders, including all the largest players, have committed to support this work.

Customers of inactive lenders and firms not authorised for new mortgage lending will be contacted by their mortgage administrator later this year and UK Finance anticipates there will be products available from a variety of lenders. Mr Glen has said he wants to monitor the extent and pace of action from UK Finance’s members to support the mortgage prisoners, who are the forgotten victims of the financial crash.

He is right to make this pledge. Mr Glen said he is determined to support re-mortgaging for those who are eligible under the FCA’s rule change, meet the criteria for lending and would benefit from doing so. The ball is firmly in the industry’s court. If it fails to act, the Government must throw the book at every errant lender.