Helping people move up in the world of mortgages.
Recently there have been reports about the FCA allowing people to get onto “cheaper” mortgage rates, after being “trapped” into their current deal.
The Mirror reported the following
“…In fact, an estimated 150,000 people are currently trapped in a bad deal – long after their initial rate ended – but banned from switching to a new one. On average, it costs them around £550 a year more compared to the cheaper product.
But that could soon be about to end, after banking watchdog the Financial Conduct Authority revealed its plan to help them escape.
“We are particularly concerned about consumers – who are commonly referred to as mortgage prisoners – who are currently unable to switch,” said Christopher Woolard, executive director of strategy and competition at the FCA.” See full article here
(By clicking this link you are departing from this regulatory site, neither Coleshill Mortgage Services nor Quilter Group are responsible for the accuracy of the information contained within the linked site.).
But what does that mean? How do people end up being trapped?
Basically when you sign up for a mortgage you may want a fixed rate for your payments. This is often the best way to go, as you then know exactly what your mortgage will cost. Often these fixed rates are only for a set period of time. You will hear quotes like a “five year fixed rate mortgage”. What that means is your rate of paying back will be set at 5 years. So if you pay £500 a month it will not change across that full 5 year period. But then what can happen after that! Well it really does depend on your deal but it can then change to a variable rate; which means the lender will use the current rate of mortgages that it sets. This can mean that it goes up, possibly it could go down!
That doesn’t sound horrendous. But some lenders have an introductory offer and then look to increase the rates of the mortgage after the set deal.
So how do people get trapped. Well after the 2009 house crash, the FCA made changes to the rules of who lenders could offer mortgages too. They made sure that people could afford the repayments and that they were not over extending themselves. Before then there were lots of irresponsible lending that meant people got mortgages they flat out could not afford. With the new rules it was a little more stringent, on what could be lent out. So people on older mortgages, where the deal is not fantastic for them, are not qualifying for a remortgage under the new rules. Which often means they are trapped in the deal they have. As they cannot afford or are not accepted for a new one.
Hence the new rules. These are to potentially relax these new rules for people that are up to date with their current mortgage payments. Almost rewarding them for staying to the deal.
Remember always speak to someone you can trust and make sure you understand the deal you have.
Your home may be repossessed if you do not keep up repayments on your mortgage.