Trapped into high variable rates and unable to remortgage to a cheaper deal, being stuck as a mortgage prisoner can be an expensive nightmare.
When the City watchdog announced that it was relaxing its rules on borrowers remortgaging away from an existing provider, there seemed to be a light at the end of the tunnel. However, Martin Lewis warns that the move will only help free a small percentage of mortgage prisoners.
The Financial Conduct Authority announced last week that it has ‘removed barriers that stop some mortgage customers from finding a cheaper mortgage deal.’
The FCA added that it planned to force all institutions that own mortgage books to notify mortgage-holders of the relaxation in rules. It will also urge them to tell borrowers that they could get a better deal by remortgaging elsewhere.
New rules could help mortgage prisoners to switch mortgage
In the past strict rules over how lenders assess whether borrowers can afford to remortgage have left many mortgage holders locked into high-interest rates.
The new rules will allow lenders to use a different and more proportionate affordability assessment for customers. The criteria will include being up-to-date with payments under the existing mortgage and not looking to move house, or borrow more.
While it’s a step in the right direction, Martin Lewis wrote on his website MoneySavingExpert that ‘This move will only unchain a tiny fraction of the UK’s mortgage prisoners.’
The money-saving guru has been campaigning to help mortgage prisoners for many years. While he is sceptical about how many people this move by the City watchdog will help, he welcomes the effort.
‘With its existing powers the regulator can only deliver a toothless response,’ says Martin Lewis. ‘By its own admission, this move will only unchain a tiny fraction of the UK’s mortgage prisoners.’
‘Yet, as we’ve been campaigning on this for years, any action is still welcome – and thousands released from mortgage misery is better than nothing,’ he adds.
The FCA estimates that between 2,000 and 14,000 mortgage holders will be able to switch to a better deal thanks to the relaxation in rules. However, that is just a drop in the sea compared to the 100,000 mortgage holders stuck on expensive tariffs.
‘More must be done for the 100,000 plus of others who are stuck in this financial trap,’ says Martin Lewis. ‘It is now time for the Government to act. We’ve waited for the regulator’s best attempt, and unfortunately, it can’t do enough.’
If you’re stuck on a more expensive mortgage, all is not lost.
Be proactive and see if you can switch mortgage lenders, and fingers crossed you’ll benefit from the new FCA rules.