by Mark Johnston
Lenders banned from discriminating against mortgage prisoners.
Recent figures have shown that more than one million interest only mortgages are due for repayment in the next eight years and most of these have no specified repayment plan, thus leaving home owners facing potential repossessions.
The majority of these mortgages were granted between 2005 and 2008, when debt was readily available from lenders. Just before the credit crisis hit, in the first half of 2008, interest only mortgages accounted for 30 per cent of all home loans.
However, the Financial Service Authority (FSA) has announced a new rule which takes effect immediately, stating that lenders must not take advantage of a borrower who can not get a mortgage elsewhere by treating them less favourably than other similar customers.
For example, banks will not be allowed to offer them worse interest rates or terms than anyone else. The Financial Service Authority (FSA) believe this rule will help those stuck with unsympatheitc lenders.
It said this would help protect people who were already stuck with their current lenders, as well as those who may become trapped when the other new rules caome in to force.
Brian Murphy, head of lending at the Mortgage Advice Bureau, said the changes would help existing borrowers who have been trapped by tighter affordability
The Council of Mortgage Lenders (CML) previously raised concerns that many more existing borrowers could find themselves trapped under the new rules.
Mortgage experts welcomed the news that lenders are now to be banned from discriminating against ‘mortgage prisoners who are unable to get new loan due to negative equity.
Lenders have been told to use their judgment on affordability requirements for borrowers with a good payment history, which will prevent them from offering less favourable interest rates or other terms and allow more borrowers to remortgage and even move lender.
The regulator also needs to make sure that banks are fair to borrowers trapped on standard variable rates and are therefore exposed to rising mortgage costs.
More than 1.6 million people have been hit recently by rising standard variable rates (SVR) despite the bank of England’s base rate remaining unchanged for more than 3 years. The banks must pass on lower borrowing costs.
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.”
Martin Wheatley, the Financial Service Authority’s (FSA) chief executive said “we want borrowers to feel confident that poor practices in the past, which lead to hardship and anxiety are not repeated”.
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