FCA relaxes mortgage switch rules to offer thousands a cheaper deal
Are you stuck in a dead-end mortgage deal? The FCA has removed the barriers preventing thousands of borrowers from switching to a cheaper rate.
As many as 30,000 “mortgage prisoners” can walk away from uncompetitive standard variable rate (SVR) deals, after a rule change from the City watchdog.
Thousands of borrowers trapped in expensive home loans for years now have licence to shop around and move to a cheaper mortgage under the relaxed restrictions.
Hailing the Financial Conduct Authority’s (FCA) move on Monday as a “win-win” for consumers, Mark Gordon, Compare the Market Director of Mortgages, says it gives homeowners the luxury of being “more choosy” when scouring the market.
Mortgage lending standards were substantially tightened following the 2008 financial crisis, with affordability checks for borrowers becoming increasingly stringent.
Many have been told they no longer meet the criteria to switch to a new loan and – combined with the impact of plummeting interest rates – tens of thousands have been left paying interest significantly above the market rate.
The FCA estimates that 30,000 mortgage holders could benefit from switching but have been barred from doing so, despite keeping up with their repayments.
Its intervention means lenders are now able to use more “proportionate” affordability checks for customers who meet certain criteria, like being up to date with payments and not looking to move house or borrow more.
“By removing barriers that stop certain borrowers from finding a cheaper deal, the FCA’s announcement will be welcomed by mortgage prisoners across the country,” Mark Gordon said. “The FCA’s policy is clearly intended to reduce the time and cost of switching more generally, which is a win-win for consumers.
“With many competitive fixed-rate deals available on the market, the immediate introduction of these reforms is a welcome opportunity for homeowners to be more choosy when shopping around for a mortgage.”
Wider changes afoot
Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said: “We are removing barriers to switching in our rules and we would like to see firms make changes to their own processes quickly in order that customers can benefit as soon as possible.
“We are also taking steps to help those who have mortgages with inactive lenders or unregulated entities to ensure that they are aware that they may now be able to switch and save money.”
The FCA has also proposed simplifying the definition of a more affordable mortgage, and allowing eligible consumers to finance intermediary fees, as well as product or arrangement fees, through the new mortgage.