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Lender brings in new affordability rules for mortgage prisoners

Lender brings in new affordability rules for mortgage prisoners
 Credit: Simon Dawson/Bloomberg

The West Brom Building Society is implementing affordability rules designed to make it easier for mortgage prisoners to switch to a more affordable deal.

The lender will implement a modified affordability assessment through an initial offering of two products available from Monday (September 14).

The range comprises an interest-only product at 60 per cent LTV, and a capital repayment option at 75 per cent LTV.

The products will be subject to tranche limits to manage demand and operational capacity.

Borrowers who believe they might be eligible under the modified affordability assessment will be able to access the products initially through the building society’s direct mortgage advisers, as well as its intermediary partner Mortgage Force.

The lender will then expand the range to intermediaries that applied to be listed on the Money Advice Service website, in response to a request by the Financial Conduct Authority (FCA) in July for intermediaries willing to help mortgage prisoners.

To qualify for the products, borrowers will have to be able to show that they are in a closed book, or held by an inactive lender.

They will also have to be eligible under the FCA’s modified affordability assessment rules that require, as a minimum, existing mortgage payments to have been made for 12 months and for there to be no arrears position. 

Jonathan Westhoff, chief executive at West Brom commented: “Mortgage prisoners, or people trapped on their current mortgage product, have been a growing issue that has rightly received much greater focus as mortgage rates have continued their downward trend over the last decade. We know that some of these borrowers have been unable to access significantly better deals for many years, some since the financial crash in 2008, and the support lenders have now received from the regulator has paved the way for change.

“We recognise that this is just the beginning and there is a lot more work that needs to be done by both lenders and intermediary firms, to help those people who have been stuck on a mortgage product for a number of years already. The West Brom can only make a small difference, but we hope that we can at least start the process of helping by creating a more active market, supported by more affordable products.”

Jane King, director and mortgage adviser at Ash-Ridge, commented: "[It] is great that we a have lender who is trying to help borrowers who are stuck in closed books".

However, Ms King also described intermediaries' limited access to the products as "very disappointing".

The FCA introduced rules to help mortgage prisoners last year by allowing lenders to use a different and more proportionate affordability assessment for customers who meet certain criteria, such as being up-to-date with payments under their existing mortgage and not looking to move house, or borrow more.

Mortgage prisoners are customers who have previously been unable to switch mortgages despite being up to date with their payments.