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MMR: Lenders free to make exceptions for ‘mortgage prisoners’

FSA Building Towers Airplane 480

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.”


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Let me congratulate the FSA on its immediate response to the ‘mortgage prisoner’ population, assessed by them as around 40% of all borrowers.

    Lenders such as Abbey are taking advantage of their position by charging higher rates to interest only borrowers. Whilst they try to defend this practice by suggesting these borrowers are higher risk the reality is that they are profiteering at the expense of borrowers who may be trapped and unable to adopt an alternative strategy.

    The MMR rule change, which takes effect from tomorrow, will outlaw this shameful practice.

  2. Yes Alan, and given that 40% or more of the market is affected what it will hopefully mean is that the market does not collapse because it stagnates as a result of nobody being able to move.

    The underhand dealings of lenders towards existing interest only customers (hiking SVRs, no offer of affordable rates at the end of the product term being just 2) is not only dangerous and nasty but extraordinarily short-sighted. The prospects of such being much higher arrears and huge drops in the property market (one of the main drivers of the economy). The risk of an existing interest only mortgage is the same as the day the lender underwrote the mortgage and will not be quantified until the end of the term particularly if the mortgage was underwritten, as many were, specifically with NO REPAYMENT VEHICLE not even sale of property !!

    For once, I too commend the FSA for this stance which is likely to be successful if it means the market does not disappear down a blackhole because 40 odd percent of the market are imprisoned by greedy immoral lenders with no prospect of moving either property or lender.

  3. Absolute scandal, so I borrowed 90% on a fixed rate deal which came to an end two years ago and have been stuck on the Halifax SVR 3.99%. Halifax will not give me a new deal but are happy to keep me on the SVR at a higher rate which results in a more unaffordable mortgage. Why doesn’t the FSA do anything about this? The FSA in return would create affordable housing, which is what the UK government wanted as a result in the first place. It’s the taxpayers money that bailed the banks out in the first place. Never mind if I lose my property as a result of my mortgage rate being too high I’ll have to claim Housing benefit, like thousands and thousands of others, which would cost the taxpayer even more money, whilst at the same time the banks are allowed to recapitalise. Once again the FSA have turned a blind eye to its big brother banks! what a big scandal. Wake up people!

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