Money

‘Mortgage prisoners’ to be freed from expensive home loans under new rules



Thousands of “mortgage prisoners” trapped into expensive home loans for years will be allowed to move to cheaper deals under new rules.

The Financial Conduct Authority (FCA) estimates that 30,000 mortgage prisoners would benefit from switching but have been barred from doing so, despite keeping up with their repayments.

The City watchdog confirmed on Monday that it has removed barriers that stop these customers from switching.

Affordability checks became more stringent during and after the 2008 financial crisis, while new rules further tightened lending standards. This meant that some customers who applied to switch no longer meet the criteria for the new loans.

As interest rates have plummeted and remained near historic lows, thousands of consumers have been left paying interest payments that are significantly above the market rate through no fault of their own.

The new rules, which came into force on Monday, allow lenders to use more “proportionate” affordability checks for customers who meet certain criteria, such as being up-to-date with payments under their existing mortgage and not looking to move house or borrow more.

Christopher Woolard, the 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.



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