The plight of so-called ‘mortgage prisoners’ has hit the headlines again due to comments made by the FCA’s chief executive, Andrew Bailey, recently which effectively said the regulator was being hamstrung in helping these borrowers secure better rates because of the situation with Brexit.
As you will know, the tightening of mortgage affordability rules – partially as a result of the European Mortgage Credit Directive – means there are an indeterminate number of borrowers who are sitting on high SVRs, locked out of the highly-competitive rates that exist because they are deemed to be ‘unaffordable’ for them under the new rules. This is even more galling to borrowers who are paying much higher rates of interest, and were they to move, would actually be paying less for their monthly payments.
The difficulty of course comes for those who are currently interest-only mortgage borrowers because with this type of mortgage now in short supply, any move to a repayment mortgage is going to mean larger monthly payments, which require far more of borrowers in terms of their affordability measures.
Anyway, back to Bailey who suggested that the rules – which came from the EU – were “bonkers” but when it came to pushing a UK mortgage market agenda to get them amended, it was – unsurprisingly – quite difficult to highlight a UK issue in European circles now, especially given the negotiations that are ongoing and (no doubt) the fact that other EU members are probably not minded to be too conciliatory on any UK-held position, let alone this one.
This, of course, doesn’t leave ‘mortgage prisoners’ in any better situation – but they might think that the UK’s exit from the EU in March 2019 will produce a better situation for them. That is however going to ultimately be dependent on any UK move to change the current affordability constraints, and it’s also going to need a lender community willing to implement them in a post-Brexit economic climate which is particularly uncertain.
Now, there’s nothing to suggest that lenders won’t be open to, what many would say, is a fairer appreciation of such borrowers and given it is likely to see some borrowers paying considerably less than they already are, it makes complete sense for this to happen. But, lest we forget, in the post-MMR environment lenders were also given the opportunity to move borrowers on to better products if they were not looking to capital raise, without any requirement to put them through the new affordability measure wringer.
A significant number of lenders chose not to do this and instead insisted on such customers having to jump through the full gamut of new affordability hoops, only then to reject them when they failed to make it over these hurdles. This, despite the fact, the rules did not require them to do this and they were effectively gold-plating them far beyond how the FCA had envisaged they might want to work.
In that sense, borrowers will need to understand that marrying up what the regulator would like lenders to do in such situations, with the decisions that are eventually made by the lenders themselves, is often very tricky.
What however may also ‘save’ such customers is the new era of Open Banking – due to be introduced from next year – which, in a post-Brexit environment where the European rules may not be so tight, might ensure that clients who are able to use Open Banking to show their entire financial picture, will be much more acceptable to lenders who will (hopefully) have the very sharpest understanding of that borrower’s finances.
It certainly doesn’t seem right that ‘mortgage prisoners’ exist when, on the surface, they would appear to be perfectly acceptable credit risks in a slightly less stifling affordability environment. Clearly, the regulator is frustrated by this but perhaps until this huge European question is somehow solved, their frustrations will continue to be shared by those borrowers who can only look covetously at the rates available to others.
Pad Bamford is business development director at AmTrust Mortgage & Credit