Help for ‘mortgage prisoners’

Thousands of homeowners who’ve previously been barred from moving to cheaper mortgage deals could now be able to switch, thanks to new rules. Under the revised rules, lenders can assess ‘mortgage prisoners’ differently to other mortgage applicants, so that they may now be eligible for mortgages which they previously wouldn’t have qualified for. The city regulator, the Financial Conduct Authority (FCA), has been working with lenders so that the changes can come into force with immediate effect. How the new rules workWhen lenders assess mortgage applicants, they’ll usually want to see proof of income and outgoings, including how much is spent on things like childcare and holidays. They will also apply a ‘stress test’ to see whether applicants can afford a mortgage based on today’s interest rates, and if rates rise in future. Under the FCA’s changes, lenders may now choose to disregard these affordability rules to help those trapped in their current deals so that they are able to remortgage. They may also take a more relaxed approach to interest-only mortgage customers. Often these customers may have been accepted for an interest-only mortgage prior to the financial crisis, without having had to show clear evidence of how they plan to repay the capital at the end of the mortgage term. The FCA’s new rules mean lenders can now adopt more proportionate checks that will allow interest-only customers to switch to a new deal.Borrowers must meet criteriaAlthough the new regulations should make it easier for mortgage prisoners to remortgage, borrowers will need to meet certain criteria before they can switch to a cheaper deal, such as being up to date with their current mortgage payments. They must not be looking to move to a new house or wanting to borrow more money, but they can finance advice fees and product fees through the new mortgage. It’s entirely up to each lender to decide to what extent they adopt the FCA changes, and for which customers, so some may still find themselves unable to switch. Christopher Woolard, executive director at the FCA said: “Responsible lending is hugely important, and unaffordable borrowing is a cause of significant harm. Mortgage prisoners are often stuck on more expensive mortgages. We are removing barriers to switching in our rules and we would like to see firms make changes to their own processes quickly in order that customers can benefit as soon as possible.“We are also taking steps to help those who have mortgages with inactive lenders or unregulated entities to ensure that they are aware that they may now be able to switch and save money.”