More victims of domestic violence will be eligible for legal aid after the Ministry of Justice agreed to drop restrictive “imaginary capital” rules for home ownership that falsely inflated their wealth and deprived them of help.

The new regulations were introduced following a high court judgment in November which said that a single parent and domestic abuse survivor who had only £28 in the bank should not have been refused legal aid for a child custody case.

Legal aid eligibility is assessed by a complex means test. The previous formula meant not all mortgage debt was taken into account and consequently calculated that applicants had disposable funds that did not exist.

The new regulations were laid as a statutory instrument on Friday. By ensuring more victims of domestic abuse are given legal representation, it reduces the risk of them being cross-examined by their abusers in court.

Daniel Rourke, a solicitor with the Public Law Project (PLP), who brought the case said: “It is plainly unfair to pretend someone has capital that simply does not exist.

“For victims of domestic violence, that has not been the case. The regulations laid today in parliament will mean that many more vulnerable women on low incomes will be able to take part in family proceedings with the support of a lawyer, in a fairer and more equal way.

“Our client [identified only as ‘Rebecca’] is earning a low wage, looks after two children and receives universal credit, yet she was denied legal aid because the rules on home ownership have not been updated in decades.

“This irrational rule ignored the fact that my client’s home was heavily mortgaged, and pretended that my client had capital which simply does not exist. The ‘imaginary capital’ prevented her from effectively participating in proceedings concerning her children.”

Family law cases have not been eligible for legal aid since the 2012 Legal Aid, Sentencing and Punishment of Offenders Act (LASPO); an exception was preserved for survivors of domestic violence.

Rebecca said: “Getting legal aid is essential. I absolutely need representation to go up against my ex-partner. I cannot bear the thought of being cross examined by him.

“When I found out that I wouldn’t be eligible for legal aid … it sent me into a tailspin. I’ve had sleepless nights and constant anxiety.

“After years of turmoil, I have finally achieved some stability by buying a home for my children and myself, so the idea that I should have to sell it is awful.”

David Greene, president of the Law Society of England and Wales, which supported the PLP case, said: “There was a clear injustice in denying people legal aid on the grounds of mortgage debt. Nobody should be expected to sell their home and make themselves homeless in order to access justice. It is good news that the Ministry of Justice is addressing this immediately through legislation.”