Trapped Mortgages

Trapped mortgages, or “mortgage prisoners”, is an awful situation for those affected, and in some cases arose indirectly from the acquisition of the mortgage books of failed banks Bradford & Bingley and Northern Rock by UK Asset Resolution, a UK government body, and the subsequent sale to Cerberus Capital Management / Landmark Mortgages. I have had several constituents get in touch with me about their individual circumstances, and I met last Monday with John Glen MP, the Economic Secretary to the Treasury, to discuss this with him directly and to see what could be done to help them.

By way of background, before the financial crash of 2008, some people had been encouraged by lenders to take out mortgages with a high loan to value ratio, meaning that a substantially high proportion of their property was mortgaged with many of the mortgages set at interest-only repayments, leaving the capital of the loan largely intact.

Many of these people, who have not missed a single mortgage payment, are trapped in expensive mortgages and unable to remortgage to get a better deal because they do not meet the new affordability tests brought in after they took out their initial mortgages.

These new affordability tests for mortgages in the UK, introduced in the wake of the effects of the US subprime mortgage crisis and the subsequent global financial crisis, are now more stringent in considering eligibility for lending, and were brought in by the Financial Services Authority (now the Financial Conduct Authority) in 2014 following its Mortgage Market Review.

The reforms to mortgage lending introduced by the FSA allowed lenders to waive affordability requirements for new and existing customers that were re-mortgaging but not increasing the size of their debt. Unfortunately, the EU's Mortgage Credit Directive, with which our country must comply until we leave the EU, came into effect in 2016 preventing lenders from waiving these requirements when a borrower moves to a new lender.

It was reassuring to hear from the Minister that finding solutions for mortgage prisoners is a top priority for the Treasury, and I know that the Government is working closely with the FCA to explore what more can be done. The FCA launched a consultation in March to look at this in more detail change their rules to enable banks to waive these affordability assessments when customers switch, and the Minister was clear that, although the Treasury cannot mandate individual lenders to take this action or that, it would be unacceptable for this situation to continue and for people to remain trapped as mortgage prisoners. The FCA is expected to report by the end of Q3 this year, and I will continue to monitor this closely on behalf of those constituents who are directly affected.

In the meantime, there are a number of steps borrowers in this difficult position can take. FCA rules prevent lenders from taking advantage of customer's situation as a mortgage prisoner and customers who feel they have been treated unfairly can make a formal complaint to their lender. If they feel that such a complaint is not dealt with satisfactorily, they can refer the matter to the Financial Ombudsman Service.

If I can be of any help on this or any other matter, please do not hesitate to contact me.