MMR: Help for mortgage prisoners

Sarah Davidson

December 18, 2011

In its latest MMR paper the Financial Services Authority said it recognised the importance of giving borrowers with existing mortgages more choice under new rules that would deem them unsuitable for a loan.

The paper said: “Market conditions and commercial considerations have already led many lenders to tighten their lending criteria following the market downturn.

“As a result, a large number of borrowers may be finding it difficult today to get a mortgage.

“We recognise that our strengthened affordability proposals may also mean that some borrowers – those who self-certified income, for example, or those who took out an interest-only mortgage with no certain plans about repaying the capital, may have difficulty getting a mortgage.

“To mitigate the impact of the affordability proposals on existing borrowers, we explain here our proposals to put in place special arrangements to help transition borrowers from the current to the new mortgage rules.

“This will allow a lender existing or new to waive some of the new affordability rules if the borrower meets certain conditions.”

To benefit from this the borrower must be able to demonstrate a good payment history covering at least the last 12 months; must not be seeking to borrow additional sums; and the monthly payment under the new mortgage must be the same as or lower than their current payment.

The FSA said this would not restrict borrowers to staying with their existing lender but would mean they could remortgage with a competitor.

The Association of Mortgage Intermediaries said it believed there was more work to be done on this section on the MMR.

AMI director Robert Sinclair said: “The only area we consider needs further work is on the transitional arrangements, where the work to assist mortgage and property prisoners might benefit from further development.

“We need to ensure that people do not get trapped on escalating variable rates, unable to access the protection afforded by fixed rate alternatives that might be cheaper in the longer term.”

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