"The changes to the affordability test should be implemented quickly, be as wide as possible and communicated clearly to all mortgage prisoners."
In March, The FCA announced new plans to help mortgage prisoners switch deals by changing how lenders assess whether a customer can afford the new loan.
The regulator announced a package of remedies including new mortgage advice rules to help remove potential barriers to innovation.
However in response to the FCA's consultation, the APPG said that the regulator's proposals "will not help everyone and many mortgage prisoners will remain trapped with their existing lender".
The APPG wants the FCA to publish a policy statement by the end of July and make the scope of the affordability test as wide as possible. It says the rules must be made available to customers in arrears, home movers, those consolidating their ‘Together’ unsecured loans and victims of domestic violence or controlling behaviour needing to remove one person from the mortgage.
The Group also wants the affordability test to be made compulsory for mortgage prisoners switching within firms to stop them "exploiting mortgage prisoners by leaving them in closed books or inactive subsidiaries within larger banking groups".
Its response added that active lenders should not "unreasonably refuse to apply" the modified affordability test to new customers who are currently mortgage prisoners with another lender.
Finally, the APPG asked the FCA to introduce a requirement for firms to give advanced warning of an intention to sell a mortgage book and a ban on sales of mortgages to unregulated entities, inactive lenders and vulture funds.
Seema Malhotra MP, co-chair of the APPG on mortgage prisoners, said: “Mortgage prisoners have told us how frustrating it is to be paying 5% or 6% interest and be told that you cannot “afford” a mortgage which would halve your interest rate and reduce your mortgage payment significantly. The changes to the affordability test should be implemented quickly, be as wide as possible and communicated clearly to all mortgage prisoners.
"Even with the changes to the affordability test thousands of mortgage prisoners will still be stuck with their existing lender and be vulnerable to exploitation. The Government and the FCA need to do more so all mortgage prisoners get a fair deal and fair treatment.”
