Barriers that stop “mortgage prisoners” moving on to a better deal are to be removed.
The Financial Conduct Authority (FCA) is introducing new rules to allow lenders to apply a different affordability assessment for customers.
Stricter affordability criteria
Tighter rules around affordable borrowing were introduced after the 2008 financial crash.
As a result, some homeowners whose financial circumstances have changed are stuck paying a much higher rate of interest on their home loan.
The FCA’s latest move to free up mortgage prisoners will mean those who meet certain criteria can move on to a better deal with lower repayments.
The criteria includes:
- Being up to date with all repayments on their existing mortgage;
- Not intending to move house;
- Not intending to borrow more (except to finance certain fees).
Mortgage prisoners often stuck
Christopher Woolard, executive director of strategy and competition at the FCA, announced the relaxing of the affordability rules.
He 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. As a result, we would like to see firms make changes to their own processes quickly so customers can benefit as soon as possible.”
Changes effective immediately
And he added: “We are also taking steps to help those who have mortgages with inactive lenders or unregulated entities.
“This will ensure they are aware they may now be able to switch and save money.”
The new rules, which have come into operation immediately, were devised following a consultation with lenders and borrowers.