Early last year, the FCA launched a consultation on mortgage prisoners and in August 2019 it announced new rules, a relative test, that could be applied by lenders for new borrowing. Effectively, this should have meant the end to people who pay extortionate interest rates, well above the market rate, being told that they ‘cannot afford to pay less’. Unfortunately, lenders are not compelled to use this test. UK Mortgage Prisoners responded to the FCA soon after by saying that it was clear from the start that the rules would not go far enough. Last week, the FCA released an analysis of data held on mortgage prisoners whose mortgages are with both regulated and unregulated lenders. However, Mortgage Solutions revealed that data for 80,000 mortgage prisoners were not analysed as they were in arrears, or had been in the last 12 months and, as such, do not fit within the rules of the new criteria. This means some of the most vulnerable mortgage prisoners have not even been considered.
Additionally, the FCA concluded that there had been little appetite from lenders to apply the new rules:
“We want as many lenders as possible to offer the modified affordability assessment. The evidence so far has shown little desire from larger lenders to adopt the changes. We look forward to more lenders stepping forward and offering products to mortgage prisoners in the coming 3 months. Their participation in this market will be what makes a difference to borrowers currently paying more in interest than they need to”
UK Finance responded to the FCA report by calling on the Government to act to help mortgage prisoners for whom the regulator has failed to come up with a solution:
As these figures show, there is still a large number of customers of inactive firms who will not be helped by the new rules and the regulator recognises that many of these customers will also currently sit outside its protection. We therefore urge the government to ensure that all customers, regardless of owner, are treated fairly.
The All Party Parliamentary Group on Fair Business Banking responded with similar concerns, calling on the Government to act, and slamming vulture funds for profiteering from mortgage prisoners and lenders for failing to apply the new rules:
“The only possible option for customers stuck with vulture funds is to refinance back into mainstream banking. This is what the FCA guidelines introduced last year were intended to facilitate. However, it appears that only Nationwide and some of the building societies have tried to address these issues. There has been a deafening silence from the rest of industry”
Kevin Hollinrake MP said:
“It is deeply cynical to laud your Corporate Social Responsibility policies and then refuse to implement guidance from the regulator. It appears that some banks seem determined to evade their clear responsibilities to be good citizens. We call on the Government to intervene to force banks to do the right thing and to prevent any bank from selling off their loan books in future to unregulated vulture funds.”
UK Mortgage Prisoners remains extremely concerned for its members, particularly those who are most vulnerable – terminally ill, carers and those who continue to suffer mental health issues as a result of becoming a mortgage prisoner. A report was compiled for the FCA ahead of the recent announcement which details the daily impact of living as a mortgage prisoner, the impact on their mental health and the financial hardships suffered over the last decade, with no end in sight. Out of 170 mortgage prisoners surveyed, 146 reported mental health issues:
“[I]n many cases, they reported stress and constant worry. A large number also reported severe depression, anxiety, issues with sleeping causing exhaustion and fatigue, mental breakdown, panic attacks and mood swings. Others said they felt mentally drained, overwhelmed and permanently in a state of worry, with little control and no way out. Amongst the responses to the question posed…five had contemplations of suicide [and there were] two deaths that had been attributed to being a mortgage prisoner”
The daily impact of living as a mortgage prisoner and having to prioritise meeting the high monthly payments meant that many things that other families take for granted had to be sacrificed; such as holidays and celebrations. Some commented on being unable to afford food, school uniforms, and others had been unable to keep up with repairs in their homes leaving one family without a fridge for two years and had not had a showering facility for eight months. In some cases people were worried that they were also unable to save and prepare for retirement. The stigma of being a mortgage prisoner was a common theme having been labelled as ‘irresponsible borrowers’. Add to this the additional stress and anxiety of what another interest rate rise would bring.
UK Mortgage Prisoners urge the Government to step in as a matter of urgency. The regulator has gone as far as it can. It is now in their hands. Our report to the FCA has been submitted to the Chancellor, Sajid Javid, who in 2013, claimed there was not enough detriment to mortgage prisoners and axed plans to help them. He has yet to respond to the report or to emails to meet with him despite his promise to meet with us if he was reelected when we met him during a protest at his office in November 2019. Our reports concludes:
“We feel that the scale of harm evidenced through this report (and there are many more quotes we could send to you) should be a very real concern, because people are suffering mentally, physically, socially and emotionally – as well as living in financial hardship. Past decisions and events that led to the unfair treatment of mortgage holders when they were sold off to unregulated and inactive private equity firms was morally and financially unfair. The evidence in this report should be taken seriously because the level of extreme harm to thousands of families, needs to be acknowledged and remedied as a matter of urgency”
The full report can be accessed belowUK Mortgage Prisoners Report for FCA