"There remains a great deal of confusion around the number of ‘trapped’ borrowers these changes are likely to help."
IMLA has urged the FCA to "avoid raising borrowers’ expectations unrealistically" following its proposals to address the issue of mortgage prisoners.
The FCA recently announced plans to amend affordability tests for mortgage prisoners which would change how lenders assess whether a customer can afford the new loan.
However IMLA believes that modified affordability criteria may only benefit a minority of those currently not able to switch to cheaper deals.
It says many lenders won't adopt the new assessment processes and that for those who do, adjusting and testing new systems will take months to complete.
IMLA has instead called on the FCA and Government to revive legislation, originally set out in a 2009 Treasury Consultation paper, that planned to extend the regulated activity of administering a regulated mortgage contract.
This was to be achieved by ensuring that companies which interact with mortgage holders were regulated by the then Financial Services Authority (FSA), including either the purchaser of a mortgage book or third-party administrators.
At the time, the Government had identified a negative impact on borrowers regarding the onward sale of mortgage books, but the legislation was dropped in 2013.
Kate Davies, executive director of IMLA, said: “The regulator has put forward clear proposals to address the issue of mortgage prisoners in the UK, which is to be welcomed. However, there remains a great deal of confusion around the number of ‘trapped’ borrowers these changes are likely to help.
“Our industry must therefore be careful not to unrealistically raise the expectations of borrowers. Proposals such as modified affordability assessments will only support a small number of borrowers who find themselves unable to re-mortgage onto better deals.
“IMLA believes that the regulator and Government should consider alternative measures, including advanced legislation that was abandoned in 2013, to improve protections for those who remain unable to switch to a cheaper, more suitable mortgage deal.”
