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BSA says mortgage prisoners will be hit by strict affordability rules

The Building Societies Association says there will still be a significant amount of so-called “mortgage prisoners” despite transitional arrangements in the mortgage market review designed to avoid this.

The FSA estimates around half of the 10.5 million people who took out mortgages between 2005 and 2011 could be prisoners because of high loan-to-value ratios, negative equity, contraction of the interest-only market and the extinction of self-certification mortgages.

Mortgage prisoners are particularly vulnerable if they are trapped in their lenders’ standard variable rate, which many lenders have increased in recent weeks.

The FSA has included optional transitional arrangements, which allow lenders to bypass some of the new affordability rules in the MMR to ensure borrowers do not become trapped as long as no additional lending is involved.

Speaking at the BSA conference in Manchester last week, outgoing chairman Peter Griffiths said some borrowers will be unable to remortgage as they will fall foul of strict new affordability rules.

He called on the regulator to develop an exceptions policy with lenders to allow them more flexibility over such borrowers.

Last month, the Financial Services Consumer Panel, which advises the FSA on consumer issues, urged the regulator to strengthen its MMR transitional arrangements.

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