With mortgage rates so low, 2019 should be a great time if you want to remortgage or move house. But the Financial Conduct Authority (FCA) has published research showing there are 800,000 people in the UK who could benefit if they switch to a cheaper mortgage.
Most of these are people whose fixed rate has ended but who have stayed on their lender’s variable rate for more than six months. And most of them could switch, saving an average of £1,000 a year! If you are one of these, read After a fixed rate mortgage ends, fix again? which looks at what to do.
But the FCA thinks there are about 150,000 mortgage prisoners, who are unable to switch. The FCA would like to be able to do more to help them so it is making some suggestions about how this might work.
Who are these 150,000 mortgage prisoners?
The EU’s Mortgage Credit Directive (MCD) says that a lender taking on a new customer has to undertake a full affordability assessment. this applies even when the customer only wants to switch to get a cheaper, fixed rate on the same mortgage – they don’t want to borrow more money or for longer.
The FCA’s research has identified 30,000 consumers who could gain from switching are unable to switch. Almost all (96%) of them took out their mortgage (or last switched) before 2009.
Many of this 30,000 are self-employed or have interest-only mortgages – two groups viewed as higher risk who have found harder to find it more difficult to get mortgages after stricter lending criteria were introduced in 2014.
There are a further 120,000 people whose mortgages are currently owned by firms that don’t offer mortgages. For example, many old Northern Rock mortgages are currently owned by a firm, Landmark Mortgages which doesn’t offer new mortgages and charges a high variable rate of 4.79%.
So that’s 30k + 120k – the 150,000 mortgage prisoners the FCA would like to be able to help.
The FCA would like to help the 150,000 but it’s hard
The FCA doesn’t have any specific proposals in its May 2018 report. For the 30,000 people identified above, it says:
we are inviting views on whether and how to enable customers on an active lender’s reversion rate to switch to a better deal in certain circumstances, specifically if they: took out a mortgage or last switched prior to the tightening in lending criteria [in 2008/9], are up to date with payments, are not looking to borrow more, and have applied for an internal switch.
The position is even harder for the 120,000 people whose mortgages are with a firm who isn’t authorised to give new mortgages. As the FCA says:
We will begin discussions on possible solutions for inactive lenders with relevant firms, consumer groups and government. Although a firm might be authorised for mortgage lending, it may have stopped lending to new and/or existing customers. The FCA’s regulatory remit is a matter for Parliament.
That’s regulator-speak for “Sorry our hands are tied, there would have to be changes to the law.”
And the May 2018 FCA report doesn’t consider the problems of the thousands of people who had Northern Rock Together mortgages. If any of them do switch their mortgage to another lender the interest rate on their unsecured lending is then hiked. As Landmark says:
If you move your mortgage to another lender and leave the unsecured loan element as a standalone loan, then your loan is referred to as delinked. Please be aware that the interest rate on a delinked Together unsecured loan is charged at our standard variable rate plus an increase of 3%, 5% or 8%, depending on when you started your Together mortgage.
New moves in January 2019 for mortgage prisoners
In January 2019 Andrew Bailey, the FCA CEO, wrote to the Treasury Committee about mortgage prisoners. He said the FCA will consult on relaxing affordability rules for mortgage prisoners, so active mortgage lenders could give mortgages to these mortgage prisoners even though the new mortgages that would not currently pass the standard affordability tests providing that the customers would not be in a worse position than they currently are.
Which sounds fine – many of the mortgage prisoners can’t remortgage elsewhere because they have interest-only mortgages or a poor credit record.
But this will only help people in practice if mortgage lenders want to offer these mortgages. That is a commercial decision and all the FCA can do is say they may offer these mortgages, it can’t force them to. I do wonder how much difference this will actually make in practice.
Other people who have problems switching
In coming to its figure of 150k, the FCA doesn’t include some groups who may want to change mortgages but can’t:
- about 140,000 people whose mortgage are close to the end have problems switching because their remaining mortgages are so small and most lenders have a minimum size and/or term. The FCA says most of these would gain little by switching as interest payments are not a large proportion of the monthly repayments you make in the last few years, but here is a story of one person who is desperate to switch but can’t;
- about 100,000 are in arrears. They may, in theory, be able to reduce their mortgage costs by switching but no other lender will take them on;
- people with a growing family may be in a house which is too small but who can’t afford to buy a larger one;
- people who have split up from their partner. They may be managing to pay the mortgage on their own but the affordability calculation may say they can’t, so they can’t remortgage into their sole name.
Easier to switch with the same lender
A new lender has to do a full affordability test, even if the new mortgage will be cheaper than your current one and you don’t have any arrears on the current one.
But it’s much easier to switch with the same lender. Most (85%) will not do new affordability or credit checks if you just want a cheaper rate on your existing mortgage.
So however bad your credit rating is, it’s worth asking your current lender if you could switch to a cheaper mortgage. Even people in debt management and IVAs may manage to do this.
Age limits on mortgages
Many of lenders have age limits on mortgages. These can badly affect people with interest-only mortgages who want to switch to a repayment mortgage but need a longer term for the new mortgage to be affordable.
The banks’ regulator, the Financial Conduct Authority (FCA), has made it clear that it wants lenders to take sensible decisions, looking at the interests of their customers and at the details of your case. A lender may have general guidelines that it won’t lend to anyone over 70, say, but it has to consider if there are reasons why the mortgage is suitable for you.
In general mortgage lenders are relaxing the age limits a bit. For example, in May 2016 Halifax raised its limit for the end of a mortgage to 80 years, but borrowing beyond retirement age requires proof of income in retirement.
You may find that smaller lenders are more flexible:
- In February 2018 the following building societies didn’t have any age limits on mortgages: Bath, Buckinghamshire, Cambridge, Chorley, Cumberland, Dudley, Family, Harpenden, Holmesdale, Leek United, Loughborough, Monmouthshire, Saffron and Vernon.
- In May 2018, Aldermore announced the maximum age at the end of a mortgage term will be 99 and Family Building Society has a maximum of 95.
- of course, you still have to show that the mortgage you want will be affordable. And if you are retired with a part-time job, the lender is unlikely to think you will still be working in your 90s!
Is a lender being unreasonable?
If you feel you have been badly affected by a mortgage lender’s refusal to give you a mortgage, or allow you to re-mortgage, or to port your existing mortgage. You need to first put your complaint in writing to the lender. If this is refused you can send it to the Financial Ombudsman.
In 2017, the Financial Ombudsman’s newsletter looked at several cases where people were refused a mortgage because of their age.
If you want a like for like remortgage or mortgage port, with no increase in the borrowed amount or the term, and where all parties to the mortgage remain unchanged, and you are refused, you should certainly take your case to the Ombudsman.
But if your problem is that your lender won’t offer you a remortgage or change your mortgage to a repayment mortgage because they are no longer offering new mortgages, the Finanical Ombudsman may be unable to help. See this decision where the ombudsman concluded:
I have considerable sympathy for the position Mrs H is in. But in all the circumstances, I don’t think Preferred is acting unfairly or unreasonably. It simply isn’t in a position to offer any alternative to Mrs H other than the mortgage product she is currently on.
First published in 2105, this article is kept up to date. Last updated January 2019.