Business

Commitment to help 'mortgage prisoners'

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Lenders will write to thousands of "mortgage prisoners" currently paying high interest rates with a potential offer to move to a better deal.

The letters, which will arrive by the end of the year, will outline some of the alternative mortgage deals available from their existing lender.

Up to 10,000 homeowners are trapped in their current deal paying high rates.

Most of these homeowners took out mortgages before new, stricter rules on affordability were introduced in 2014.

'Trapped'

An interim report into the mortgage market, published in May by the Financial Conduct Authority (FCA), highlighted the plight of these borrowers.

These "mortgage prisoners" were unable to move to a better deal when their existing mortgages switched to the more expensive standard variable rate, even if they could meet the payments.

This was the result of stricter affordability checks or changing circumstances after the original deal was agreed.

The FCA said it had identified about 150,000 such customers. Of these, about 30,000 were with authorised mortgage lenders, while about 120,000 had mortgages held by non-regulated firms - which include some previous Northern Rock and Bradford & Bingley customers.

Some 10,000 of them are with lenders who are still actively operating in the mortgage market.

It is some of the people in this group that are designed to be helped by a commitment among 59 lenders to help them to find better deals.

The rules set by the regulator mean they will still, in effect, be blocked from searching the whole of the mortgage market for a cheaper fixed-rate deal.

However, assuming they are currently keeping up with repayments, the commitment - organised by trade body UK Finance - means they will receive a letter from their existing lender outlining what similar, but cheaper, deals are available.

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Jackie Bennett, director of mortgages at UK Finance, said: "Lenders have responded to the FCA's challenge and made a voluntary commitment to help these longstanding customers."

However, given that lenders can be - and have been - writing to some customers already, UK Finance is likely to face accusations that it is doing the bare minimum in response to the FCA call for an industry response to the issue.

One big name currently missing from the commitment is TSB, which has been struggling with the fallout from its chaotic IT switchover in recent months.

A TSB spokesperson said: "We are fully supportive of the UK Finance initiative and we are working with them to completely understand how this project will work. We are hoping to join the scheme over the coming weeks."

In its report, the FCA also said a "significant minority" - about 30% - of general mortgage customers failed to find the cheapest mortgage.

It wants to make it easier for borrowers to see what mortgage products they can qualify for earlier on in the application process, and to assess and compare these products.

However, UK Finance has yet to offer any solutions to this issue, arguing that further investigation is needed. It believes that new technology should be given time to aid price comparisons, before any regulatory intervention.

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