New FCA rules allow mortgage prisoners to borrow advice costs

The new rules allow lenders to use a different and more proportionate affordability assessment for customers who meet certain criteria, such as being up-to-date with payments under their existing mortgage and not looking to move house or borrow more (except to finance certain fees).

The FCA has made some changes to its proposals in light of feedback received to its consultation, which include simplifying the definition of a more affordable mortgage and allowing eligible consumers to finance intermediary fees, as well as product or arrangement fees, through the new mortgage.

The FCA also confirmed that customers of inactive lenders and firms not authorised for mortgage lending will have to be contacted and told that it has become simpler and easier for them to switch to another lender.

Christopher Woolard, executive director of strategy and competition at the FCA, said: "Responsible lending is hugely important, and unaffordable borrowing is a cause of significant harm. Mortgage prisoners are often stuck on more expensive mortgages. We are removing barriers to switching in our rules and we would like to see firms make changes to their own processes quickly in order that customers can benefit as soon as possible.

"We are also taking steps to help those who have mortgages with inactive lenders or unregulated entities to ensure that they are aware that they may now be able to switch and save money."

Seema Malhotra MP, co-chair of the All-Party Group on Mortgage Prisoners, commented: “These changes should help stop a few mortgage prisoners being told that the FCA’s rules mean that they cannot afford a cheaper mortgage. Mortgage prisoners must be informed clearly and quickly about their new chance of escape and the names of the lenders applying the new modified affordability test.

"But these changes are not enough, the FCA’s own cost benefit analysis suggests that these reforms won’t help 90% of mortgage prisoners. They will continue to remain stuck between UKAR’s policy of selling them on to inactive lenders trapping them paying high variable rates, the Government’s refusal to expand the scope of the regulatory framework and the FCA’s reluctance to use its existing powers to get them a fair deal.”