The Financial Conduct Authority (FCA) has proposed new rules to help homeowners stuck in high-interest loan deals; AKA ‘mortgage prisoners’.
What are mortgage prisoners?
Well, prior to the 2008 financial crisis, the affordability tests that lenders were running weren’t as strict. However, regulations are tighter now and therefore lenders are stricter.
As a result, around 150,000 homeowners are stuck with high-interest home loans and are unable to switch to cheaper deals. Hence the label; mortgage prisoners. 30,000 of these customers were authorised mortgage lenders and 120,000 had mortgage deals with non-regulated firms.
For example, you may have been approved for a mortgage involving £400 monthly repayments (before 2008) and always met these payments on time. However, despite effectively proving you can afford these payments, recent lending regulations could make it tricky to get accepted even for a £300 monthly mortgage.
What is the Financial Conduct Authority proposing?
If you happen to be one of these prisoners, there’s now a glimmer of light, as the FCA is aiming to free you of your chains!
In order to do this, the FCA has proposed to loosen its affordability checks for customers stuck in this predicament. Therefore, allowing people to remortgage to a deal that’s easier to pay.
Mortgage prisoners are stuck on high default rates due to an FCA requirement introduced in 2014. This rule required mortgage holders to meet very strict affordability checks when applying for a new fixed deal.
The new proposals would apply only to people in this situation who are simply wanting to get their costs down. It won’t apply to those seeking to borrow more money on their mortgage.
Although, building societies and banks would still have to accept these customers. They’ll decide which customers should be given the modified assessment on a case-by-case basis.
Mortgage prisoners crisis – what do we think?
He said: “When the crash came in 2008, the Government moved swiftly and decisively to shore up the banks who had gotten themselves into difficultly because of their own risky behaviour.
“As the then Prime Minster declared to Parliament, his Government had ‘saved the world’ through the bailouts.”
Anees points out that it was the people who inevitably funded the bailouts through taxation and austerity.
“Unsurprisingly, it’s the same people who were left with unmanageable mortgages to repay”, Anees added.
Working in Property, Anees said: “It is no doubt that this move will be welcomed and give relief to those trapped by these mortgages.
“This will hopefully spur greater action for those similarly trapped by Interest Only mortgages on residential properties. It is just a shame that some have inevitably had to lose their homes for this to now take place.”