Welcome to iCalculator's monthly Mortgage update for November. In this month's Mortgage related news, we take a look at:
- An Important step taken by FCA to help mortgage customers.
- Details about the new rules.
- Definition of 'Mortgage Prisoners'.
- Categorization of Mortgage Prisoners.
- Impact of new mortgage rules.
- What to do next.
Key points in our November 2019 mortgage Update:
- New mortgage rules will help customers stuck with a high cost mortgage.
- New rules enable mortgage prisoners free to shop around.
- Existing mortgage customers will be categorized for assessment.
- New assessment measures are effective immediately.
- Borrowers to seek professional advice before switching.
Financial Conduct Authority (FCA) confirms help to 'Mortgage Prisoners'
The Financial Conduct Authority of UK has confirmed that it is offering help to the consumers of mortgage loans. It has removed the barrier that stops mortgage customers from switching to cheaper mortgages. All those borrowers who have been running mortgage but aren't happy about the pricing, can take advantage of this new rule.
What are the new mortgage lending rules?
The new rules allow lenders to use different kinds of assessment measures for existing mortgage customers. These methods are more proportionate to access affordability and can be used for the customers who meet certain criteria such as:
- They have existing mortgage loan and are looking to switch to a new lender for cheaper deals.
- Are regular on their repayments of the existing mortgage.
- Not looking to borrow more (except any fee relating to the current mortgage).
- And are not looking to move houses.
The FCA has also confirmed that customers of inactive lenders whose loans have been sold out after the crisis are to be contacted and told they are free to shop around for cheaper deals. The number of these customers is estimated to be around 150,000.
Defining A 'Mortgage Prisoner'
Mortgage borrowers who are up-to-date on their repayments year after year but are unable to switch to mortgage with more reasonable rates are often called 'Mortgage Prisoners'. This term is also used to define the customers, who are not able to switch to more affordable mortgage, due to tightened lending policies that came into effect at the time of financial crisis in 2008.
FCA concluded that customers in this position or could be in this position in the future are, suffering an unnecessary harm as they are paying higher mortgage payments.
Categories of Mortgage prisoners
These borrowers will be divided into four categories while being assessed for new deals:
- Those who do not meet affordability rules because the rules have been changed.
- Those whose property value has decreased in comparison to their mortgage balance.
- Those who do not meet the affordability rules because their circumstances have changed.
- Those who had been victims to the northern rock "Together" Loan and can't afford to pay it off when they move.
Who will be affected by the new rules?
The new policies will have a direct impact on:
- Mortgage lenders - Any new or existing financial institutions that offer mortgage.
- Mortgage customers - Only the existing mortgage customers, who are looking to switch to another lender for a cheaper deal.
- Mortgage intermediaries - All mortgage brokers who act on behalf of the borrowers.
- Mortgage administrators - Any authorized mortgage administrators.
- Unregulated entities that own mortgage books - All these entities will be forced to sell their mortgage of their existing customers if they are willing to switch to another lender.
Thousands of mortgage borrowers have remained unhappy with the government over the years because they were stuck with the mortgages that were costing them way too much. Now that the FCA has approved new, more proportionate assessment measures of affordability, these are the next steps that should be taken by borrowers as well as lenders:
- The changes are effective immediately. For lenders, it is advisable to start using the modified assessment tools as soon as possible. The financial entities are also required to report to FCA as soon as they start using the modified assessment measures.
- For borrowers, all eligible consumers that meet all the standards of new rules should choose a new mortgage lender and reach out to them. This will allow you to access detailed financial advice related to your situation and the mortgage you have. Alternatively, you could contact an independent financial advisor for a mortgage review and information on what lending options are available to you based on your current financial situation.