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‘Mortgage prisoners’ could be helped with new legislation

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‘Mortgage prisoners’ could be helped with new legislation

People trapped in uncompetitive mortgages could get new opportunities to transfer to a new lender if proposed legislation put forward by the MP for Dover and Deal gets the go ahead. Charlie Elphicke's ten-minute Banking (Consumer and Small Business Protection) Bill1 aims to help up to 200,000 mortgage 'prisoners' across the UK who were impacted by affordability tests brought in following the financial crash of 2008.

Amor Financial are based in the heart of Tunbridge Wells and offer mortgage services throughout Kent & Sussex 

Mortgage prisoners in a ‘crazy situation’

Mortgage prisoners are typically borrowers who took out a mortgage before the financial crisis but are now blocked from switching to better rates due to changes in lending practices. Elphicke’s plans would exempt reliable borrowers from the affordability tests payments, and ban lenders and the Treasury from selling their mortgage books to unregulated businesses.

‘Every one of these 200,000 families affected has a story of how they have struggled to get by, struggled to meet expensive payments to keeproof over their heads.It’s insulting for them to be told they cannot afford to pay less,’ explained the Conservative MP. ‘The rules say they cannot afford payments on a mortgage at, say, 2 per cent, so they are forced to continue with a mortgage paying 5 per cent or more. It is a crazy situation.’

Presenting his bill to the House of Commons2, Elphicke argued that these borrowers took out their deals before the current affordability rules were introduced and have proved they can meet their repayments, yet miss out on cheaper deals because of ‘computer-driven affordability tests that ignores the reality of the real world’, adding: ‘It is wrong for the Treasury to have allowed borrowers to be placed in a worse position than would otherwise have been the case’.

Financial Conduct Authority proposals

The FCA has also proposed changes to lenders’ affordability assessments, suggesting a ‘modified assessment’ for those trapped by their mortgage. However, the government has confirmed this would not help all mortgage prisoners, as the decision as to whether to offer new loans to individuals would be down to lenders.

‘There needs to be a willingness from the industry to offer remortgaging opportunities to these customers once the FCA’s proposed reforms come into effect,’ explained the economic secretary to the Treasury, John Glen, in a letter to Nicky Morgan MP, chairman of the Treasury select committee. ‘This will be a commercial decision for individual lenders based on their risk appetite and the individual circumstances of the customers looking to switch to a cheaper deal.’

Mr Elphicke said that the FCA’s proposed changes ‘sounded good’, but had a ‘big shortcoming’ as it would not be obligatory for lenders to contact customers and adopt the modified assessment. 

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