Thousands of homeowners stuck on high mortgage rates may be offered a lifeline as banks and building societies this week committed to helping them switch to something more affordable.
Up to 10,000 homeowners could finally be able to switch to a cheaper deal thanks to the move.
Before the financial crisis, it was much easier to get a mortgage and many people took one out that they would never be approved for today.
In 2014, new stricter lending rules were introduced so that homeowners didn’t risk overstretching themselves.
93 per cent of the UK’s residential mortgage market have agreed to help eligible borrowers
But the stricter criteria meant that some existing homeowners could not pass the eligibility tests of lenders, which meant that when their deals came to an end they were simply rolled over on to their existing lender’s standard variable rate, which tends to be much more expensive.
This week, trade body UK Finance confirmed that 59 lenders representing 93 per cent of the UK’s residential mortgage market have agreed a list of common standards to help these borrowers.
To qualify, customers will need to be existing borrowers of an active lender, be up to date with payments, have a minimum remaining term of two years, and have a minimum outstanding loan amount of £10,000.
However, this won’t help the estimated 20,000 homeowners that the City watchdog has identified as being with lenders that are no longer active in the market, and the 120,000 customers with unregulated mortgage lenders.
Jackie Bennett, director of mortgages at UK Finance, said: ‘Lenders have responded to the FCA’s challenge and made a voluntary commitment to help these longstanding borrowers, offering them the ability to switch to an alternative product if they meet the agreed criteria.
‘We expect more lenders to participate in the coming months. Furthermore, we will be working closely with the FCA and active lenders to see what might be possible for customers of inactive and unregulated lenders.
‘Participating lenders will be contacting qualifying homeowners so for now, customers don’t need to do anything but wait to hear from their mortgage provider.’
At the watchdog’s request, lenders will write to any qualifying borrowers by the end of the year to inform them of their options.
Customers do not need to take any action and will not be obliged to switch if they don’t want to.
Paul Broadhead, of the Building Societies Association, said: ‘By signing up to this voluntary agreement lenders will ensure that existing borrowers are not disadvantaged by the changes to mortgage regulation since the financial crisis.
‘The agreement formalises the actions that many societies have been taking and provides clarity and confidence for all affected borrowers.’
Homeowners will need to be existing borrowers of an active lender to be eligible for help
The commitment is focused on customers with active lenders initially, with a view to next explore what might be possible for the 20,000 customers with inactive lenders and the 120,000 customers with unregulated mortgage owners.
However, Rate Switch founder Lee Flavin believes more can already be done to help the homeowners with inactive lenders.
He said: ‘Like active lenders, some of the companies who now administer closed “inactive” mortgage books set their own standard variable rates – so they surely have the ability to reduce these for mortgage prisoners.’
Which lenders didn’t sign up, and why?
Some customers, who would otherwise be eligible, won’t qualify as their lender has not yet signed up to the agreement.
UK Finance declined to provide a comprehensive list of which lenders hadn’t signed up.
A spokesman for the trade body said: ‘The industry has only had a short time to consider this agreement.
‘We expect more lenders to sign up to the agreement over the coming weeks and months and will be updating the list with further lenders as they join.’
There are however some notable absentees on the list published this week.
Customers of TSB Bank are not eligible, as the lender has not signed up – the only top 10 lender not to do so.
The crisis hit bank said it was working with UK Finance and planned to join the initiative in the coming weeks.
Another absentee was Precise mortgages, which boasts nearly two billion in lending across the UK.
A spokesman said: ‘In common with other lenders, we are evaluating whether it would be appropriate for us to subscribe to this agreement over the coming months.’
The other notable lender not yet to sign up to the scheme is challenger bank Aldermore, which said: Aldermore is fully supportive of helping borrowers stuck on reversion rates in any way we can and welcome UK Finance’s call to action for the industry.
‘We are currently reviewing our practices to best deliver on UK Finance’s criteria and will seek to outline support in the next few weeks.’