Lenders will be allowed to implement their own exceptions to the affordability rules for mortgage prisoners, including those on interest-only mortgages, as long as they refrain from additional borrowing.
The FSA identifies mortgage prisoners as borrowers who are unable to exit their mortgage due to credit impairment, a high LTV, negative equity or an interest-only arrangement where no repayment vehicle is in place.
Under the MMR proposals outlined in December, mortgage prisoners would qualify for transitional arrangements if they could demonstrate a good payment history covering at least the last 12 months, were not attempting to take on more debt and the monthly payment under the new mortgage was the same as or lower than the existing payment.
In the final MMR rules, published last week, the FSA says it has recognised the “complexity and inflexibility” of its proposals.
Instead, existing borrowers will now be free to switch to a higher monthly repayment plan, a different rate, switch lenders and port their mortgage without a compulsory affordability assessment being enforced by the FSA under the responsible lending rules, as long it is judged to be in their best interests and they do not take on additional debt.
Additional product or arrangement fees will not be counted as additional debt.
FSA mortgage policy manager Lynda Blackwell says: “The market said to us we had made the transitional arrangements so restrictive that it was not going to help consumers because there were so many conditions. It asked us to think about allowing it to do this on an exceptions basis. That is why we have relaxed it. The whole point is to make sure more borrowers can benefit from the arrangements.”
The regulator remains firm on its refusal to allow additional borrowing, as it fears there will be no way to control “the gaming issues that would arise”. The only exception is where additional funds are taken out in order to provide essential repairs or maintenance on the property.
LMS finance director Peter Clarkson says: “While people may be able to remortgage, all providers will not necessarily have to lend to them so they may still be locked out of some of the better value deals. It remains to be seen how the industry will approach this but we hope this move will be the light at the end of the tunnel that mortgage prisoners need.”