In Focus Consumer Credit


Constitutional conundrum


Has Brexit increased the number of mortgage prisoners?


Paul McGerrigan Chief executive, Loan.co.uk


In January 2020, the FCA estimated that there were approximately 250,000 mortgage prisoners in the UK. Not all of these people are necessarily worse off. For example, while they cannot leave their current deal, some already pay a low interest rate and would potentially end up paying more if they switched to a new provider. However, there are plenty of people that are trapped in expensive mortgage plans and unable to remortgage onto cheaper products that better serve their needs. Since then, there may now be even more


mortgage prisoners due to the UK’s biggest political development of the century: Brexit. There were numerous fears over the financial implications of Britain’s withdrawal from the EU, and


so far it has been difficult to gauge the full impact (Covid-19 has, of course, eclipsed Brexit as the most significant economic concern of the moment). But one thing we do know is that British expats living in the EU and internationals living in the UK are now at huge risk of becoming financial casualties of Brexit, stuck with costly mortgages and currently with no clear way out.


The reason for this is because Brexit


resulted in an end to passport arrangements for financial services on 31 December 2020, thereby stopping UK banks and building societies from trading freely in the EU. As a result, some UK lenders have already adapted their lending criteria in response, such as TSB, which barred expats from switching to a new mortgage from 1 January 2021, and Saffron Building Society, which withdrew lending over the lack of clarity in terms of its regulatory obligations. Internationals living in the UK face the same problem unless they have confirmed their ‘Settlement Status’. Thankfully, some of these individuals


may avoid becoming mortgage prisoners, depending on their current lenders. There is still much uncertainty surrounding these new rules so lenders are ultimately deciding how to interpret them. This has led to a few offering product transfers, allowing mortgage holders to remortgage with the same company once they reach the end of their deal. While this is better than being stuck on


a worse product, they will still probably be prevented from switching to a lender offering better terms, therefore paying more compared to a UK-based British citizen in the same situation. And amidst the economic turbulence caused by Covid — which is still far from over — this could have serious financial consequences for those affected. Borrowers never would have contemplated this grave possibility when applying for their


26 www.CCRMagazine.com


Thankfully, some of these individuals may avoid becoming mortgage prisoners, depending on their current lenders. There is still much uncertainty surrounding these new rules so lenders are ultimately deciding how to interpret them


mortgages, and now their financial futures are effectively all down to chance. The huge, ongoing fallout from the pandemic means that domestic needs have taken priority, while this significant burden on expats and internationals living in the UK has largely been brushed under the carpet. The full scale of this problem is unclear


at the moment. Those affected can hope that their lender will apply for licences in the relevant countries, but that certainly is not guaranteed. Otherwise, there has been speculation that a deal may be reached in the coming months to prevent this influx of mortgage prisoners. There have been no official statements


suggesting this is the case, but hopefully more attention will be drawn to this incredibly unfair situation and mortgage holders will have their predicament addressed and dealt with sooner rather than later. CCR


August 2021


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