Mortgage prisoners and first-time buyers benefit from reforms

The Financial Conduct Authority (FCA) has announced changes have been made to lending rules that are designed to help mortgage prisoners, while last month the Government made changes to its Help to Buy equity loan scheme. With the Government stating that it is planning to make more changes, along with the end of Help to Buy ISAs in November, here we take a look at all the current changes that are taking place or expected to happen.

This week, the FCA revealed that it has introduced new rules that allow mortgage lenders to use a different and more proportionate affordability assessment for customers who meet certain criteria. It is hoped that the relaxing of borrowing regulations will help some mortgage prisoners to find a cheaper mortgage deal. The criteria mortgage prisoners have to meet includes being up-to-date with payments on their existing mortgage and not looking to move house.

Some have criticised the changes, highlighting the fact that it does not help mortgage prisoners who want to move home, for example those looking to downsize, thereby trapping mortgage prisoners into remaining in their current property.

Commenting on the changes, 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 so 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."

At the end of August, changes were announced to the Help to Buy equity scheme so that mortgage borrowers with a Help to Buy equity loan can now get a mortgage term for 35 years, up from the previous maximum of 25 years. This change only impacts those based in England, as there is no set maximum in Scotland and Wales. This change enables homeowners to spread the cost of their mortgage repayments over a longer period of time, however borrowers should be aware that the longer it takes to pay off a mortgage, the more they will pay in interest.

In addition to this, the Government confirmed reforms to the Help to Buy shared ownership scheme. The biggest shake-up will be allowing those who have purchased a property via the Help to Buy shared ownership scheme to increase their ownership by 1% increments, instead of 10% that is currently required.

From 30 November, savers will no longer be able to open a Help to Buy ISA. These ISAs were created for those saving for their first home and became popular with savers as it offers a 25% Government bonus (as long as the terms and conditions of the ISA are met). Those who have opened a Help to Buy ISA before 30 November can continue depositing money into the account until the 30 November 2029, but will have to claim the bonus before 1 December 2030.