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Lenders Offer a Lifeline to Thousands of ‘Mortgage Prisoners’

Published: 20 September 2018

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Author: Carl Shave - CEO and co-founder
Last updated: 30May2024

The Financial Conduct Authority (FCA) has announced that 59 UK lenders – who between them make up 93% of the residential mortgage market – have committed to a set of common standards designed to help “mortgage prisoners” who are tied into expensive deals. The move is expected to help an estimated 10,000 borrowers.

Mortgage prisoners are borrowers whose mortgages have reverted to their lender’s expensive standard variable rate (SVR) and would benefit from moving to a better deal, but are unable to do so due to tougher affordability checks put in place by lenders in recent years.

The new common standards formalise a process that some lenders had already put in place: contacting qualifying borrowers to offer the opportunity to move to a better rate. Under the agreed common standards, each of the 59 lenders who have signed up have agreed to write to qualifying mortgage prisoners by the end of this year, if they have not already done so.

There are a number of qualifying conditions under the new scheme. First, borrowers must be owner-occupiers with a mortgage that is on an active and regulated lender’s standard variable rate, and they must be looking for a like-for-like mortgage. The mortgage must not be in arrears and should have a minimum outstanding balance of £10,000 with at least two years’ term remaining on the loan.

While this is good news for up to 10,000 mortgage prisoners who qualify under the agreed terms, some critics have complained that this number is really just the tip of the iceberg. An estimated further 20,000 borrowers hold mortgages with inactive lenders – that is, lenders who no longer offer new mortgage lending and therefore don’t have alternative, lower-rate products onto which the existing mortgage could be transferred.

An even larger number of mortgage prisoners – an estimated 120,000 – also hold mortgages with unregulated mortgage owners who are not part of the Building Societies Association, the Intermediary Mortgage Lenders Association or UK Finance. The FCA is still considering what measures could be implemented to help these borrowers.

There is also a small number of lenders who haven’t yet signed up to the common standards. UK Finance hasn’t said who all of these lenders are, but it has stated that it expects more lenders to join the commitment before the end of the year. TSB is the only one of top ten UK mortgage lenders not to have signed up yet, but has said it plans to adopt the common standards soon. Two smaller lenders, Aldermore and Precise Mortgages, have said that they are considering whether or not to sign up to the standards.

If you are on your lender’s standard variable rate, or are on a mortgage deal that is shortly due to expire and will then revert to the SVR, then it can make sense to look into your remortgage options – it may be possible to save money by transferring your mortgage to a better deal with a different lender. Here at Just Mortgage Brokers, we have years of experience helping customers find the mortgage deal and lender that’s right for them. Contact us today for free initial advice from one of our expert mortgage advisers.