FCA, has outlined the regulator's solutions to improving switching options for mortgage prisoners. In a letter to Treasury Committee chair Nicky Morgan, Bailey said the vast majority of mortgage prisoners were with inactive lenders and unregulated firms, making up a total of 140,000 borrowers.
Although regulators, trade bodies and lenders have committed to helping borrowers with active, authorised lenders switch to a cheaper deal, Bailey admitted that the key issues remained those borrowers with a firm that cannot offer an internal switch. In his letter, Bailey promised that the regulator "will take immediate action to help customers of inactive lenders and unregulated firms".
Since the implementation of the Mortgage Credit Directive in 2016, mortgage lenders have been required to undertake an affordability assessment of new customers even when they are not borrowing a larger amount. These customers can therefore only switch to a better rate if they meet the lending criteria of an active lender.
Bailey said the FCA wants to "remove potential barriers in our rules to these customers switching to a cheaper mortgage" and will consult on changes to our responsible lending rules, with the aim to deliver "a more proportionate affordability assessment".
The FCA plans to move the affordability assessment from an absolute test to a relative test, which assesses whether the new mortgage costs are more affordable than the current mortgage costs.