New bank rules will create 5.5million 'mortgage prisoners'

Published 05th Nov 2010

One in two homeowners with a mortgage could be crippled by changes proposed by Britain’s financial regulator, a major research report has warned.

The worrying prediction raises fears of a country of ‘mortgage prisoners’ who either cannot get a loan, or cannot remortgage their current deal.

The research, published yesterday by the Council of Mortgage Lenders, warns around 50 per cent of Britain’s 11.4million people who have a mortgage could be affected.

Of the total, around 20 per cent, equal to around 2.2million people, will be ‘shut out’ from the mortgage market – this means the loan that they currently have would not have been handed out under new rules currently being proposed by the Financial Services Authority.

To make matters worse, a further 30 per cent of people with a mortgage, equal to around 3.4million, will be able to borrow less than they need. The changes pose a worry for millions of homeowners whose loan is coming up for renewal, such as a three-year fixed deal which is about to end.

The CML fears that homeowners will not be able to remortgage to a rival bank or building society due to the new rules proposed by the FSA.

Under the proposals, radical changes will be made to who can get a mortgage, how much they can borrow and what type of mortgage they can take out.

The proposals could signal the death of interest-only and self-certification mortgages, according to the study.

Michael Coogan of the CML said the new rules are ‘an over-reaction to past problems’, warning: ‘As a consequence, they will not lend to as broad a range of potential customers.’

Source: ' This is Money '

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