Homeowners who are trapped with expensive mortgages will be allowed to switch to potentially cheaper loans under new rules.
The Financial Conduct Authority (FCA) has introduced responsible lending rules, removing barriers that previously stopped customers from renegotiating. Tighter lending standards have been in place since the 2008 financial crisis, despite interest rates falling to – and remaining at – historic lows ever since. This led to some ‘mortgage prisoners’ paying interest considerably above the market rate, and being unable to afford new loans.
Christopher Woolard, executive director of strategy and competition at the FCA said: “Unaffordable borrowing is a cause of significant harm and mortgage prisoners are often stuck on more expensive mortgages.
“We have removed barriers to switching and we would like to see firms make changes to their own processes quickly in order that customers can benefit.”
UK Finance, however, warned the FCA about managing expectations. Jackie Bennett, director of mortgages at UK Finance, added: “There is a risk that the changes could unduly raise expectations among some customers on reversion rates. This may include customers who are in negative equity, in current or recent arrears or on an interest-only mortgage with no repayment strategy.”