The Financial Conduct Authority has announced new rules which will allow lenders to assess affordability differently when looking at mortgages for mortgage prisoners. The new guidelines will let mortgage lenders use a more proportionate affordability assessment which is different to the rules currently used.
What is a mortgage prisoner?
A mortgage prisoner is someone who wants to remortgage but finds themselves trapped in their current mortgage deal. Read more about mortgage prisoners here.
Am I a mortgage prisoner or can I get a standard remortgage?
The main difference between whether someone is classified as a mortgage prisoner or not is down to their level of income and what they can borrow. Historically, since changes brought in a few years ago, many lenders restrict what they will lend to customers to a maximum of 5 times their income. For customers who took out mortgages before these, customers may find their income restricts what they can borrow.
However, many customers may mistakenly believe that they are mortgage prisoners when, in fact, they would qualify for a standard remortgage. If you’re not sure, speak to your local mortgage broker and they can check for you.
Criteria for mortgage prisoners to change their mortgage
In order to be eligible to move onto a cheaper mortgage, customers will need to meet certain criteria. The main criteria are that they need to be up-to-date with their mortgage payments and not looking to borrow more money or move home.
Whereas with a standard remortgage, borrowers have the option to borrow extra and are less restricted in terms of income needed, the new rules will allow mortgage prisoners who have previously been unable to remortgage to look at doing so.
Comments from the FCA
Christopher Woolard, Executive Director of Strategy and Competition 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.’
The FCA has made some changes to its proposals in light of feedback received to its consultation, which include simplifying the definition of a more affordable mortgage and allowing eligible consumers to finance intermediary fees, as well as product or arrangement fees, through the new mortgage.
The FCA wants customers to benefit from these changes as soon as possible so the new rules are coming into force immediately. The FCA has been working closely with firms to help them get ready.
It also means that customers with inactive lenders and unregulated firms who are not authorised for mortgage lending will be contacted and informed that they may be able to switch to a different lender.
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