Lenders will be allowed to make their own exceptions to the affordability and interest-only rules for existing borrowers as long as they refrain from additional borrowing.
Under the proposals outlined in December, mortgage prisoners would only 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 current payment.
In the final version of the MMR, the FSA has back-tracked on a number of its original proposals, saying it has recognised their “complexity and inflexibility”.
Existing borrowers are now free to switch to a higher monthly repayment plan, a different rate, switch lenders and to port their mortgage without having to worry about 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 taking on more debt.
FSA mortgage policy manager Lynda Blackwell says: “What the market came and said to us was we had made it so restrictive that it was not going to help consumers because there were so many conditions on it. They asked us to think about allowing them to do this on an exceptions basis, making them more likely to use it.
“That is why we have relaxed it. We have said it should be dealt with on an exceptions basis and the only exception is that the borrower isn’t taking out more money. The whole point is to make sure more borrowers can benefit from the arrangements.”
The regulator remains firm on not supporting additional borrowing as it fears there will be no way to control “the gaming issues that would arise”. Blackwell previously indicated the regulator might consider allowing borrowers to take on more debt under transitional arrangements.
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 as to how the industry will approach this but we hope that this move will be the light at the end of the tunnel that mortgage prisoners need.”