Brendan Burgess
Founder
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The UK Financial Services Authority has a consultation on the mortgage market at the moment. [broken link removed]has described those who cannot switch to another lender as "mortgage prisoners" and calls for specific protection for them, so that the SVR is not pushed up to an unreasonable level.
This would be a good development here.
It's very interesting that the FSA is actually asking this question.
(Asked in the Consultation Paper)
Q16: Do you think that there is sufficient protection for mortgage borrowers who are ‘trapped’ with their current lender? If not, what additional protection do you suggest?
(The Consumer Panel's reply)
As we indicate above we are concerned that the level of protection for such borrowers might not be sufficient. The FSA has shown itself to be unwilling to enforce the Treating Customers Fairly principle where there is no other evident breach of the rules, and while the UTCCRs (Unfair terms and conditions rules) have been used in the past where lenders have made ‘unfair’ changes to interest rates this is a slightly different situation. For instance, when a consumer’s fixed term deal comes to an end it is standard practice for that consumer’s mortgage to be moved to, what is often a more expensive, Standard Variable Rate (SVR). This is legitimate practice and unlikely to contravene the UTCCRs. However, it could potentially work out to be significantly more expensive for a consumer and, if unable to move to another mortgage product, that consumer could find themselves ‘trapped’ in a difficult situation.
We therefore suggest a specific rule to protect ‘mortgage prisoners’, given that these consumers who become 'trapped' with their current lender are particularly vulnerable as the usual market forces of competition and consumer choice will not apply to them. In order to ensure that such consumers are not unfairly treated or discriminated against by reason of their inability to access alternative, more competitive mortgage products a new rule would have to define the category of 'trapped' mortgage customers. It would then include a provision which prohibited lenders from treating such consumers less favourably than other mortgage customers by reason of the fact that they were 'trapped'. The policy objective would be to prevent detriment in the first instance, as well as providing a remedy where necessary.
This would be a good development here.
It's very interesting that the FSA is actually asking this question.
(Asked in the Consultation Paper)
Q16: Do you think that there is sufficient protection for mortgage borrowers who are ‘trapped’ with their current lender? If not, what additional protection do you suggest?
(The Consumer Panel's reply)
As we indicate above we are concerned that the level of protection for such borrowers might not be sufficient. The FSA has shown itself to be unwilling to enforce the Treating Customers Fairly principle where there is no other evident breach of the rules, and while the UTCCRs (Unfair terms and conditions rules) have been used in the past where lenders have made ‘unfair’ changes to interest rates this is a slightly different situation. For instance, when a consumer’s fixed term deal comes to an end it is standard practice for that consumer’s mortgage to be moved to, what is often a more expensive, Standard Variable Rate (SVR). This is legitimate practice and unlikely to contravene the UTCCRs. However, it could potentially work out to be significantly more expensive for a consumer and, if unable to move to another mortgage product, that consumer could find themselves ‘trapped’ in a difficult situation.
We therefore suggest a specific rule to protect ‘mortgage prisoners’, given that these consumers who become 'trapped' with their current lender are particularly vulnerable as the usual market forces of competition and consumer choice will not apply to them. In order to ensure that such consumers are not unfairly treated or discriminated against by reason of their inability to access alternative, more competitive mortgage products a new rule would have to define the category of 'trapped' mortgage customers. It would then include a provision which prohibited lenders from treating such consumers less favourably than other mortgage customers by reason of the fact that they were 'trapped'. The policy objective would be to prevent detriment in the first instance, as well as providing a remedy where necessary.