Mortgage prisoners
The FCA has introduced rules to help clients who are up to date with their mortgages, but who have been unable to switch to cheaper loan deals because of changes to lending practices during and after the 2008 financial crisis and the subsequent tightening of lending standards.1FCA Handbook, MCOB 11.9, which came into effect on 28 October 2019 This group of borrowers are often referred to as ‘mortgage prisoners’. Mortgage lenders can relax the strict rules and provide ‘more affordable mortgages’ where:
•the new mortgage has a total lower expected cost and lower interest rate over the deal period (or whole term if there is no deal period) than the current mortgage; and
•the typical monthly payment over the new mortgage (during the deal period or if there is no deal period over the whole mortgage term) is lower than the monthly payment made in every one of the last 12 months under the current mortgage.
The rules apply where the client:2FCA, MCOB 11.9. •has a current mortgage; and
•is up to date with their mortgage payments; and
•does not want to borrow more, other than to finance any relevant intermediary, product or arrangement fee for the mortgage; and
•is looking to switch to a new mortgage deal on their current property.
The rules also apply to interest-only mortgages. The lender can extend a mortgage term but must warn the client if this would extend borrowing into retirement.
The modified ’affordability assessment’ cannot be used when the client is looking to switch to a new mortgage on a new property. The new mortgage deal does not have to be with the same lender. While the new rules may help a considerable number of clients to obtain cheaper remortgages, they are of no assistance to those with arrears and are unlikely to help those in negative equity.