To comply with European regulation lenders in the UK will be forced to apply full affordability checks on all borrowers wishing to move lenders, creating thousands of mortgage prisoners who are unable to move or remortgage after March next year.
Borrowers who want to stay with their existing lenders will not be subject to the same affordability restrictions however.
Duncan Kreeger, director of West One Loans, said the short-term finance industry was on the lookout for desperate borrowers applying for an unregulated bridging loan in a last ditch attempt to secure finance.
He said: “Short-term finance isn’t necessarily going to provide the solution for mortgage prisoners stranded under the new regime next year.
“While there may not be too much of a problem straight away while rates remain low, as soon as they start to rise it will become more of an issue and we could find more borrowers stuck in the mire.”
Lucy Hodge, director of Vantage Finance, said fears that bridging could see a sharp rise in fraudulent applications were unfounded, adding that lenders and brokers have raised their standards “significantly” in the past few years after the regulator raised concerns of borrowers “gaming” the short-term sector.
Hodge said: “All brokers and lenders should have measures in place to recognise where a deal is being dressed up as an unregulated loan when it is not.
“In the regulated short-term sector there is a onus on both lender and broker alike to ensure the exit route is feasible and that the transaction makes sense.
“While borrowers with no options will inevitably look to find an alternative if they have become mortgage prisoners, it will be down to the industry to ensure it becomes well known that these options are not viable or even possible to achieve.”
