A change is on the way for borrowers trapped by 2014’s stricter mortgage rules, reports Duncan Farmer
Four years ago mortgage lenders tightened their application process to ensure that borrowers could repay the loan, and avoid a return to pre-credit crunch days when high-value loans were being granted almost willy-nilly. The immediate impact was that many people who would previously have qualified for the mortgage they wanted were no longer eligible, and consequently the housing market stalled.
Since then the situation has settled down and some lenders have relaxed their criteria, particularly on income, slightly.
However, one group of borrowers who already had a mortgage when the new rules were introduced were caught in a tricky situation. What would they do if they wanted to remortgage but their earnings and other financial history did not meet the strict new criteria? If they were on a fixed-rate deal that was about to expire they were automatically put on their lender’s standard-variable rate loan, which is usually far more expensive than a two or five-year fixed deal.
They became known as “mortgage prisoners” and there seemed little that could be done for them. Now, however, UK Finance, the trade body for most banks, the Building Societies Association and the Intermediary Mortgage Lenders Association have agreed that these prisoners should be set free and allowed access to a cheaper loan if one is available.
There are some conditions: they must be owner-occupiers looking for a like-for-like mortgage, up-to-date with their repayments and have at least two years left outstanding.
The changes follow an interim report by the Financial Conduct Authority into the mortgage market, which found that although most parts of the industry were working well, a change could benefit those trapped by the changes in 2014.
Some lenders have already passed on the news to their customers and others will be notified whether they qualify by the end of the year and can then decide what to do.
Paul Broadhead, head of mortgage and housing policy at the Building Societies Association said: “By signing up to this voluntary agreement lenders will ensure that existing borrowers are not disadvantaged by the changes to mortgage regulation since the financial crisis.