150,000 'mortgage prisoners' need help to escape from expensive deals, says watchdog

The Financial Conduct Authority urged for more innovation to help for around 150,000 people who signed up for deals before interest rates plummeted after the financial crisis

A general view over the City of London (Getty)

Tens of thousands of people are “mortgage prisoners”, trapped on expensive deals and not allowed to switch, the financial regulator has said.

The Financial Conduct Authority urged for more innovation to help around 150,000 people who signed up for deals before interest rates plummeted after the financial crisis.

They have since been switched to more expensive “reversion rates” once their previous deal expired and are unable to switch because they do not meet stricter affordability rules that have been brought in.

Christopher Woolard, director of strategy and competition at the FCA, said: “For many, the market is working well, with high levels of consumer engagement.

“However, we believe that things could work better with more innovative tools to help consumers.

“There are also a number of longstanding borrowers that have kept up-to-date with their mortgage repayments but are unable to get a new mortgage deal; we want to explore ways that we, and the industry, can help them.”

The FCA said it will consider seeking an industry-wide agreement to approve applications from those who are affected and are up-to-date with payments.

However, this will only help 30,000 people who are with authorised mortgage lenders. The remaining 120,000 are with firms who are not authorised to lend, often because the lender has sold on a batch of mortgages. These firms are outside the FCA’s remit, which is set by parliament, meaning new legislation would be required to enable the regulator take action.

Money Saving Expert founder Martin Lewis said: “There’s a mortgage ticking time bomb in the UK. Standard mortgage rates are soaring way above the UK base rates – and if interest rates rise – there is a huge risk of arrears and repossessions. This needs to be prevented.

“The biggest risk is a forgotten tribe of victims, who have been locked for years into high rate mortgages. I’m delighted the regulator has responded to our research on mortgage prisoners – we’ve been nagging it, the dovernment and the EU for years to sort out this mess; and this is a decent start.

“The FCA estimates 30,000 people are stuck on an expensive rate but can’t switch – even though they would benefit. It must look at fixing this. It’s suggesting a possible voluntary agreement with the lenders – if that will work, great. If not, then it needs to force them. Whatever happens, it must act fast. Each month these consumers are forced to pay vastly more than they should do, constantly eroding their finances.