LONDON (Reuters) – Tens of thousands of mortgage “prisoners” in Britain could be freed after the financial regulator said on Thursday it would ease affordability checks required by home loan providers when remortgaging to a cheaper deal.
The “prisoners” took out loans before tougher rules introduced since the financial crisis left them unable to meet stricter mortgage affordability tests, even if they have an unblemished record of repayments.
Interest rates in Britain have begun to rise, making it more pressing to help those customers locked into variable-rate mortgages with a high rate of interest unable to shop around for cheaper deals.
They include 10,000 customers at authorised lenders, 20,000 with firms that are no longer actively offering loans, and 120,000 with loans from firms not regulated by the UK’s Financial Conduct Authority (FCA).
Banks at UK Finance, a trade body, came to a voluntary arrangement earlier this year to allow some customers of authorised lenders to remortgage if they met basic conditions.
But lenders have said that changes were needed to help people who want to move home loans from an unregulated firm to avoid being in breach of current regulations.
FCA Chief Executive Andrew Bailey said the watchdog will publish a consultation paper in the spring.
“To help these customers, we will consult on changes to our responsible lending rules, with the aim to deliver a more proportionate affordability assessment,” Bailey said in a letter to parliament’s Treasury Select Committee that was published on Thursday.
Jackie Bennett, director of mortgages at UK Finance said they would continue to work with their members and the FCA to help customers who want a like-for-like mortgage to switch lenders more easily.
Bailey said the new test would be whether the new mortgage costs are more affordable than the current costs, and would focus on people who want a cheaper deal and are not increasing the amount borrowed.
“There also needs to be a willingness from industry to offer re-mortgaging opportunities to these customers once the regulatory barriers are removed,” he added.
“Over the coming months, we will work with firms and trade bodies on the practicalities of re-mortgage options.”
Martin Lewis of consumer campaigner MoneySavingExpert.com welcomed the “sensible” move.