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StepChange responds to FCA consultation on mortgage prisoners

26 June 2019

“Good principle, not effective in practice for closed book borrowers”.

StepChange Debt Charity - including StepChange Financial Solutions, the charity’s mortgage arm - today responded to the Financial Conduct Authority’s consultation (CP 19/14) on a more pragmatic approach to affordability and responsible lending for mortgage “prisoners”.

StepChange supports the main proposals, but says much more needs to be done to address the plight of those trapped in expensive mortgages with inactive or unregulated lenders.

These customers – likely to include people seeking to manage debt problems - will be unlikely to be able to remortgage to new lenders and cut their costs even under the proposed changes, though they are precisely the customers who could most benefit from being able to do so.

A recent parliamentary debate on “mortgage prisoners and vulture funds” and ten minute rule Banking (Small Business and Consumer Protection) Bill gained strong support from a cross-party group of MPs to enable consumers to transfer mortgages between providers and to prohibit the sale of mortgage debt to unregulated entities.

As Alison Thewliss MP pointed out, “…Over the past 11 years a bank could have been paid between £22,000 and £55,000 more than other customers by exactly the same customers who were told that they could not afford a cheaper mortgage.” Yet the FCA proposals do not currently provide a mechanism to resolve this problem.

I was trapped in an interest-only mortgage without the ability to swap to a repayment mortgage so have paid full variable rate interest for 10 years."

StepChange Debt Charity client, March 2018

The FCA has already accepted the principle of price intervention where vulnerable consumers are concerned (in the rent-to-own credit market). StepChange Debt Charity recommends a similar approach in the mortgage market.

Of the clients StepChange provided with debt advice in 2018, 16% had a mortgage and 18% of these had mortgage arrears. 30% of all clients had a negative budget (income not sufficient to cover essential expenditure), and 14% of clients with a negative budget had a mortgage.

StepChange is concerned that a combination of high housing costs and limited support can cause people to resort to high cost credit or other forms of borrowing to cover mortgage payments. This may mask the appearance of direct mortgage repayment difficulties, but could make people’s overall financial position significantly worse. Twenty-nine per cent of clients surveyed in 2017 said they were using high cost credit to cover their rent or mortgage payments.

Commenting on the FCA consultation on mortgage prisoners, StepChange Head of Policy Peter Tutton said:

“The FCA’s principle of making it easier for mortgage prisoners to switch is great, but it won’t work in practice for some of those in the greatest need of help. If people are on “closed books” with inactive or unregulated lenders and fall outside other lenders’ risk appetite, they don’t qualify.

"Given that these types of trapped customers are likely to be those who could benefit most from lower costs, we think greater intervention is justified, even if further legislation is needed to achieve it.”

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