‘Mortgage prison’ sentences eased

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Expectations are mounting that lending rules will be relaxed to help those homeowners trapped by negative equity to move house.

The Financial Services Authority (FSA) is thought to be considering measures to loosen lending restrictions which could help free “mortgage prisoners”.

According to figures from the Council of Mortgage Lenders, one in 12 homeowners – around 827,000 – are in negative equity, where the value of their home is less than the amount of mortgage they owe.

The new guidance would make it easier for homeowners to take their negative equity with them when selling a home.

They could remortgage to buy another property without having to immediately pay off the balance owed.

It is understood that the easing of restrictions would only be available to customers who have not had problems repaying the mortgage they took out.

Those homeowners who have struggled with their payments could face tougher tests.

David Hollingworth, associate director of mortgage adviser London and Country Mortgages, said: “There are all sorts of reasons why someone might want to move house, for work, for example.

“Any options that come as a result of giving this flexibility must be a positive thing.”

He added: “What it will not mean is: ‘You need to borrow, here you go’.”

The FSA, which declined to comment, is expected to make an announcement on the issue next week.

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