The Financial Conduct Authority (FCA) has criticised major high street lenders for not embracing its affordability assessment changes with only 14,000 mortgage prisoners being able to materially benefit.

Further analysis of the customer books for closed, inactive and unregulated lenders conducted by the FCA confirmed much of the regulator’s initial analysis of the mortgage prisoner population.

In contrast, lender trade body UK Finance highlighted that there appeared to be a far larger number of borrowers who will not be helped and would need support from government.

Key findings from the FCA’s further analysis were:

• Around 250,000 people are in closed mortgage books or have mortgages owned by firms that are not regulated by the FCA;
• Around 170,000 of these borrowers are up-to-date with payments and would be eligible to switch because of the new affordability rules;
• Over half of the group that are eligible are paying interest of 3.5 per cent or less, with 39 per cent paying less than 3.0 per cent;
• Of those eligible to switch, 40,000 have less than £50,000 to repay, many of whom have less than 10 years remaining on their mortgage.

The FCA suggested borrowers with little to repay or limited term left would find limited value in switching depending on the deals available.

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“We estimate around 14,000 eligible mortgage prisoners should be both likely to meet commercial lending criteria and stand to make a meaningful saving,” it said.

Lenders step forward

But despite this summary detailing the potentially limited pool of borrowers who would benefit, the regulator criticised lenders for not being more proactive in changing affordability rules.

“We want as many lenders as possible to offer the modified affordability assessment. The evidence so far has shown little desire from larger lenders to adopt the changes,” it said.

“We look forward to more lenders stepping forward and offering products to mortgage prisoners in the coming three months.

“Their participation in this market will be what makes a difference to borrowers currently paying more in interest than they need to,” it added.

Government action more important

However, UK Finance suggested that lenders maybe reluctant to overhaul affordability assessments due to the small number of people likely to be helped given the time and expense in doing so.

Instead it argued there was greater need for government action to ensure borrowers outside the FCA’s remit were treated fairly.

UK Finance CEO, Stephen Jones, said: “These figures help provide much needed clarity for both customers and lenders confirming that, as per the regulator’s previous estimates, around 14,000 eligible customers will likely meet the lending criteria and stand to make a meaningful saving.

“Given this number of borrowers, there will be a limited number of firms who, dependent on risk appetite, will be able to develop new products to meet their needs.

“As these figures show, there is still a large number of customers of inactive firms who will not be helped by the new rules and the regulator recognises that many of these customers will also currently sit outside its protection. We therefore urge the government to ensure that all customers, regardless of owner, are treated fairly,” he added.

Widen FCA perimeter

The FCA has previously called for it to be given greater powers to regulate lenders outside its remit.
In November it said: “Decisions about our regulatory remit are a matter for the government and parliament.

“In our view, there is a case for extending the regulatory perimeter to capture all mortgage loans.
“This would leave us better able to influence market behaviour through a combination of our principles and rules.”