People buying flats in buildings lower than 18m (59ft) in England will no longer have to provide details on external cladding to get a mortgage, the government has said.
Housing Secretary Robert Jenrick said major lenders, including Barclays, HSBC and Lloyds, supported the change.
The move follows concerns over large improvement bills facing many flat owners since the Grenfell Tower fire.
But Labour called the height-based stipulation "arbitrary".
After the 2017 fire in Grenfell Tower, west London, in which 72 people died, thousands of blocks of flats were found to be covered in similar dangerous cladding.
Work to remove the material, as well as other fire safety improvements, meant many residents were charged thousands of pounds, often leaving them negative equity and unable to sell their property.
Mortgage lenders became warier and started asking for forms on external cladding to be completed - and often refused applications if would-be flat owners failed to produce one, Mr Jenrick told MPs.
He called the decision to exempt leaseholders in low-to-medium-rise blocks from this requirement "an important but subtle change of tone" which would lead to a "significantly different housing market".
Home fires were at an all-time low, he said, while 91% occurred in houses, bungalows or converted flats.
By 365Nainanews business presenter Sarah Corker
This is an attempt to unlock parts of the property market that have been paralysed by the cladding crisis.
It's estimated that up to 3 million flats have been left unsellable because lenders are demanding an Exterior Wall System form, or EWS1, to prove the property is safe.
It's left people in low and mid-rise buildings, where the safety risks are deemed as low, unable to move with properties valued at zero.
Even blocks with no cladding have been affected.
The problem has been compounded by a shortage of fire engineers to carry out the checks and flat-owners have faced long delays obtaining the paperwork.
There is an acceptance too that "extreme risk aversion" from lenders, insurers, and the wider property industry has resulted in flat-owners across the UK receiving massive bills for work that is not necessary.
Lenders have now committed to review their practices on this, but the response from leaseholders has so far been muted.
They are waiting for banks to actually change their policies - only then will this policy make a real difference to those caught up in the cladding scandal.
Mr Jenrick also said: "In the small number of cases [in purpose-built tower blocks below 18m] where there are known to be concerns these should be addressed primarily through risk management and mitigation."
He added: "Fire-risk assessors and lenders should not presume that there is significant risk to life unless there is evidence to support this.
"This would ensure that they respond only to the evidence and adopt a far more proportionate and balanced approach."
Mr Jenrick said he was pleased major lenders had agreed to change their rules, adding: "I hope and expect other lenders to follow suit swiftly."
The change, which will apply only in England, would influence mortgage lenders' attitudes across the UK, he added.
For Labour, shadow housing secretary Lucy Powell said there was a "cosy relationship between developers and the private inspectors they handsomely pay".
She added: "The government should think again about its arbitrary definition of high-risk buildings."