The Financial Services Consumer Panel called this week for more protection for mortgage customers who may find themselves ‘trapped’ in their existing deal under stricter lending guidelines.
The consumer group said that if mortgage-holders are unable to move their deal elsewhere when new tougher lending criteria come into effect, they could be charged a higher rate of interest – especially those on interest-only mortgage deals.
The official panel, which advises the Financial Services Authority (FSA), urged the introduction of a new rule which protects “mortgage prisoners” from discrimination or unfair treatment if a lack of equity or other reasons stops them from taking advantage of cheaper mortgage deals.
In its report, it said that “The risk of being charged a higher interest rate because a consumer is unable to move their mortgage elsewhere is particularly acute. This applies both to borrowers who are already trapped, because they do not meet current tightened lending criteria, and those who may be trapped in the future following implementation of the Mortgage Market Review (MMR).”
The FSA is is currently trying to prevent irresponsible lending which has led in the past to borrowers obtaining mortgages they cannot really afford. Last December’s MMR proposals introduce new rules concerning mortgage advice and the verification of income, which gives lenders the responsibility of putting greater emphasis on other financial outgoings other than the mortgage payments.
The proposals are meant to come into effect next summer – but the Financial Services Consumer Panel also suggested that the FSA delay them to allow the UK property market time to recover.