Thousands of homeowners who are stuck on expensive mortgages – known as mortgage prisoners – could soon be able to switch to a cheaper deal under new proposals from the financial regulator.
The financial watchdog the Financial Conduct Authority (FCA) says it is proposing changes to how lenders assess whether or not a customer can afford the loan.
People who have become trapped on their current deal and find themselves unable to remortgage are known as mortgage prisoners.
Moneywise reported in January that the FCA had conceded it needed to do something to help people trapped on expensive mortgage rates, unable to switch.
Since the introduction of the Mortgage Market Review in April 2014 anyone taking out a mortgage is now subject to stricter lending criteria to check that they can afford to repay.
Unfortunately, some borrowers are unable to get a new mortgage despite their circumstances not changing as they do not meet the stricter affordability rules and are stuck paying higher interest rates.
Christopher Woolard, FCA executive director of strategy and competition, says: “We are particularly concerned about consumers – who are commonly referred to as mortgage prisoners - who are currently unable to switch.
“That is why we are acting now to help remove potential barriers in our rules. These changes should make it easier for consumers to get a more affordable mortgage.”
The FCA estimates there are currently 150,000 mortgage prisoners in the UK who took out loans before interest rates plummeted after the financial crisis.
In its interim report into the mortgage market published last year, the FCA found that 30,000 mortgage prisoners were with authorised mortgage lenders.
The remaining 120,000 were held with firms not authorised to lend, in many cases because the lender had sold on the mortgages.
The changes will only apply to those looking to lower the cost of their mortgage and banks and building societies would still need to agree to take on these customers.
Richard Campo, managing director at mortgage lender Rose Capital Partners, says: "The new changes will be a welcome salvation for thousands of homeowners.
“For years these lost borrowers will have been going through heartbreak as they helplessly watched themselves become saddled with high interest rates before being locked out of cheaper deals despite being able to keep up with their repayments.”