The Coronavirus pandemic has delayed lenders from bringing forward switching options for mortgage prisoners trapped on expensive deals, the FCA has admitted.

In its annual report on the regulatory perimeter, the watchdog has warned that difficult market conditions may lead to further delays or potentially fewer lenders providing products for trapped borrowers.

However, the FCA does not believe that changing its regulatory perimeter to bring mortgage book owners that are currently unregulated under its remit would resolve the problem.

The watchdog also revealed that during the pandemic, 3.4m people took payment deferrals on mortgages and other products.

Borrowers who have taken up such deferrals may find that they have fewer options available to them when they come to remortgage, potentially adding to the ranks of mortgage prisoners.

The report says: “We recently changed our rules to introduce a modified affordability assessment to remove regulatory barriers to switching for mortgage prisoners and other borrowers who are up to date with their payments. 

“The disruption caused by coronavirus has meant that lenders’ plans to offer new switching options to mortgage prisoners have been delayed.”

“We are committed to working with industry through our implementation group to see these switching options being offered in the coming months.

“Worsening market conditions are likely to impact on firms’ risk appetites and the availability of switching options but we still expect our modified affordability assessment to help some mortgage prisoners.

“In addition to our modified affordability assessment, we have also explored what else we can do to help borrowers who are unable to switch. 

“We are consulting on new rules that will make it easier for some closed book (ie books not lending to new customers) borrowers to switch to a mortgage with a new active lender within the same financial group.”

UK Mortgage Prisoners lead campaigner Rachel Neale says: “These borrowers are among the most vulnerable homeowners because of the exceptionally high mortgage payments they have to meet every month. 

“As part of the Chancellor’s support measures, attention should be given specifically to this group and a cap on their interest rates needs to be introduced with immediate effect. 

“They were struggling before the pandemic and many are right on the edge of survival now. 

:Such high rates cannot be justified on the basis of the risk these borrowers pose, given that the majority have continued to meet their obligations to repay despite the rates.

“We would also urge lenders who are looking to implement new criteria and offer bespoke help for those mortgage prisoners not to discriminate over those that have taken payment holidays. 

“We would like to remind all banks building societies that they can offer new deals or relax the criteria allowing more mortgage prisoners to move quickly.”