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Rules 'to help mortgage prisoners'

New mortgage rules will help those struggling to upgrade their home, sources have said.

The new legislation will mean "mortgage prisoners" - people locked in negative equity and unable to move house - will be able to get better loans.

The change in mortgage application rules is to be announced by the Financial Services Authority (FSA) next week, according to the Daily Mail.

The loosening of lending restrictions is understood to only be available to customers who have not had problems repaying the mortgage they took out, and those who have struggled with their payments will face tougher tests being imposed on all new customers.

The FSA's announcement follows a two-year inquiry and will reveal proposals designed to stop a repeat of the excessive and dangerous lending that led to the banking crisis with a set of tough new rules.

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

The problem also has a knock-on effect on first-time buyers, who are squeezed out of new homes as those they would normally have bought are being lived in by people who cannot move elsewhere.

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