Trade bodies, including the Association of Mortgage Intermediaries and the Building Societies Association have lobbied the FSA to give lenders greater scope on how they choose to deal with “mortgage prisoners.”
In the latest MMR policy statement, the FSA said: “We can see that borrowers may benefit from taking on higher payments to fix their rate in periods where interest rates are expected to rise. Similarly, we can see that they may benefit from some material variations to a mortgage, such as a change in term.”
The final rules outlined options including:
• an affordability assessment for all existing borrowers when they make changes to their mortgage – either as a contract variation, or as a new replacement contract;
• an affordability check only where there is additional borrowing, or a material impact on affordability; and
• allowing lenders to make their own assessment about making exceptions to the affordability and interest-only rules
The FSA has also ruled that an affordability assessment will not be required for an existing borrower, staying with their existing lender, where there is no additinal borrowing unless there is a material impact on affordability.
The FSA said there will be situations where the responsible lending rules continue to bite for existing borrowers. This includes where:
• there are material changes to affordability • the borrower does not have an acceptable repayment strategy for an interest-only mortgage; or
• the borrower wishes to move their mortgage to another lender
“We recognise that in such scenarios, while an affordability assessment should apply because there may be a material impact on affordability, there may be some situations where, due to extenuating circumstances, such a change may be in the interests of the borrower and lead to a better outcome than remaining in their current situation.
The FSA said: “Our revised approach allows lenders flexibility to make their own decisions about making exceptions to the affordability and interest-only rules for existing borrowers.”
