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Published: 27/03/2019

New rules are set to come into force that could help homeowners trapped on a high interest rate switch to a cheaper mortgage deal, in a move that could see thousands of mortgage prisoners set free from their current predicament.

Affordability rule changes

The Financial Conduct Authority (FCA), the UK's financial watchdog, has published the final report of its Mortgages Market Study in which it found that, although many aspects of the mortgage market are working well, it's falling short in some ways – including in relation to so-called mortgage prisoners.

As it stands, strict affordability rules mean some people are unable to remortgage to a cheaper deal, perhaps because their circumstances have changed since they took out the original loan, their lender is now inactive or they simply can't meet heightened stress test requirements, despite the fact they've never missed a repayment and aren't looking to borrow more. This essentially means they're stuck paying a higher interest rate, even though being able to remortgage could actually lower their repayments and improve their level of affordability.

Now, this could change, with the FCA proposing that lenders carry out a more proportional affordability assessment for those borrowers who simply want a better mortgage – specifically, those who aren't looking to borrow more and who are up-to-date on their repayments.

Lenders will check that the borrower has made all necessary repayments in the last year, and will ensure the new deal has a lower rate and consequently lower monthly repayments, ultimately allowing them to remortgage if the new deal is cheaper than their current one. They also wouldn't have to apply the stress test rule (which assesses if homeowners could cope if interest rates rose in the next five years), with it hoped that this will remove some of the barriers to those stuck on expensive mortgage terms – ultimately, "these changes should make it easier for consumers to get a more affordable mortgage," said Christopher Woolard at the FCA.

Extra help

That's not all the FCA is proposing, either. Alongside relaxed affordability rules, the additional proposals include:

  • Helping customers of inactive or unregulated lenders switch to a new deal with a different mortgage provider. To do this, lenders will contact their residential mortgage customers who are up-to-date on repayments and are currently on a standard variable rate (SVR) or reversion rate to notify them of the new rules and the potential to switch.
  • Making it easier for homeowners to choose the right mortgage by providing additional support and encouraging innovation in the industry, thereby helping customers more easily identify the mortgages they qualify for.
  • Providing additional support to help customers choose a mortgage broker.

The proposed rules aren't yet set in stone (they're still in the consultation stage), and there are some people whom the rules won't be able to help – specifically, those who are in arrears, have considerable debts, have a very high loan-to-value (LTV) or who are in negative equity. But, on the whole, it's hoped that the proposals could help thousands of homeowners who are currently paying too much for their mortgage, and ideally, it won't be too long before we see some real change.

What next?

Struggling with high mortgage repayments? Compare the best remortgage deals, or speak to a mortgage broker to see if there's anything they can do to help.


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