Are you a mortgage prisoner?
Who’d be a 20-30 something these days eh? Bleak economic outlook, no jobs and no chance of getting on the property ladder. Given the impending tougher new FSA regulations on provision of mortgages, which includes no interest-only deals, it will be a job for anyone to get a mortgage anymore.
And therein lies the problem. Under the new rules, there are likely to be many thousands of people who currently have a mortgage, who would not qualify for one under the new rules. This mean they effectively can’t get another mortgage and are prisoners of their current mortgage provider. Oo-er.
But actually, the FSA have actually been quite sensible for once and have recognised the “complexity and inflexibility” of their proposals. Although they previously allowed some transitional provisions, if borrowers 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 existing payment, there were fears this wasn’t enough. Now, lenders will be allowed to implement their own exceptions to the affordability rules for mortgage prisoners, which would include those currently on interest-only mortgages, so long as they don’t borrow any more money.
The FSA defines mortgage prisoners as borrowers who are unable to exit their current mortgage deal owing to credit impairment, a high LTV percentage, negative equity or an interest-only arrangement where no repayment vehicle is in place.
These prisoners will now be free to switch to a higher monthly repayment plan, a different rate, switch lenders and port (transfer) their mortgage to a new property without 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 (not including product fees).
However, while lenders are now allowed to help out mortgage prisoners, it remains to be seen whether or not they will. Many insiders are questioning whether responsible-after-the-fact banks and building societies will actually deign to take on borrowers without the requisite string of impeccable credit credentials.
Peter Vicary-Smith, chief executive of consumer lobby group Which??? commented: "Transitional rules to protect mortgage prisoners are a good start but the regulator needs to go further to make sure banks are fair to hard-pressed borrowers trapped on rising mortgage payments." Because being fair is what banks are all about, right?