Capital payment delay for mortgage prisoners?

The UK’s financial watchdog is planning new rules which will delay repayment of the capital on interest-only loans held by mortgage prisoners.

Many prisoners are struggling financially because of the pandemic and thousands of them hold interest-only or part and part mortgages which are due to mature and would require repayment of the full capital.

Delayed

But a consultation paper issued by the Financial Conduct Authority (FCA) proposes that those final payments for some borrowers should be delayed until October 2021.
The ‘holiday’ would only apply if borrowers are currently up to date with their interest payments and have been affected by the adverse economic conditions caused by the coronavirus.

Easing

The new rules will also recommend the easing pf regulations to allow borrowers to switch lenders within the same financial group as their current one.

The move would make it easier for those borrowers whose lender has a closed mortgage book (one not accepting new customers) to switch to a new deal.

Prisoners

So-called mortgage prisoners are borrowers who took out a mortgage before the financial crisis of 2008 and later became blocked from switching to a newer, cheaper deal by stricter lending rules imposed by the Mortgage Market Review.

Many borrowers were told by their lender that they could not switch, even though the monthly repayments would be cheaper and they were not in arrears on their current deal.

Help

The FCA has already appealed to mortgage brokers who were willing to help prisoners find a better deal with an active lender. The watchdog believes 14,000 borrowers would be likely to benefit from such an initiative.

Last year the FCA required lenders to write to borrowers who could be eligible to switch their mortgage, but since then the coronavirus has resulted in many lenders removing large numbers of new mortgage deals from the market.

Repossessions

In March MPs urged unregulated lenders to halt repossessions against mortgage prisoners after finding that a number of firms who had acquired the loan books of lenders who had gone out of business were taking action.

The All Party Parliamentary Group on Mortgage Prisoners said: “The difficulties for mortgage prisoners, who have been paying often two or even three times normal market rates for more than a decade, are well documented and it is unconscionable that these borrowers are now being forced out of their homes.

Breathing space

“It is entirely within the gift of these funds to give people breathing space whilst we work through solutions. How the unregulated funds react to this will be telling. Even though the FCA cannot compel them to oblige, they should certainly want them to act as responsible funds.

“Their legacy should not be to extract every last penny from their portfolio whilst leaving a path of destruction in their wake.”