Helping mortgage prisoners get a better deal

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Are you a mortgage prisoner? Find out how we can release your handcuffs and set you free!

What is a mortgage prisoner?

Mortgage prisoners are borrowers who are unable to move from their current mortgage deal. This means that despite being up to date with payments, and even though they could get a cheaper deal, the borrower is not able to switch to a revised mortgage that could see them paying less interest and reducing their monthly mortgage costs.

How do you become a mortgage prisoner?

A change in circumstances is what usually puts a borrower in mortgage prison. It may be that your financial situation has changed since you last applied for your mortgage, so that if you reapply for a better deal you won’t pass the affordability checks, even though you have been consistently paying your current mortgage and the new deal could see your payments lowered.

This is often the case if you bought your home six or more years ago, before lending criteria became far tougher. It may be that you have a large mortgage or are on the lender’s standard variable interest rate, so your payments are not fixed.

Mortgage prisoners first began to emerge in the early 2000’s when lenders were offering 100% and even higher loan-to-value of property mortgages. When the lending criteria was tightened up, the people who had taken out these loans then found they were no longer eligible if they tried to apply for a better deal once their fixed rate deal had come to an end.

How can I tell if I am a mortgage prisoner?

Do you have a large mortgage and have your financial circumstances changed? Perhaps you have changed jobs, become self-employed, or taken a part-time role – if any of these reasons means that you will not pass an affordability or eligibility check for a revised mortgage deal, you are a mortgage prisoner.

If you have had credit issues since buying your home, if the value of your home has dropped below what you paid for it, or lending criteria have changed since buying your home, you could be a mortgage prisoner and unable to remortgage, change your mortgage deal, or move home.

Criteria have changed since the Mortgage Market Review in 2014, resulting in the criteria for mortgage lending becoming far stricter. Now, borrowers must show that if interest rates were to rise by three or four per cent, they would still be able to pay their mortgage. You may find that even though you passed the criteria when you bought your property, you may not meet the new requirements now, leaving you stuck on your current mortgage deal.

What issues can it cause?

The irony is that while affordability checks may tell you that you can’t afford the monthly payments on a new mortgage deal, those payments would be less than your current rate – which you have been paying with no problem. Worse, if you have come to the end of a fixed mortgage rate and are now subject to the lender’s standard variable rate, your payments could become even higher if interest rates go up.

This can leave you paying more than you need to on your monthly mortgage payment, and leaving you with less disposable income, which could be used for other bills, paying off other debts, cars, holidays days out or even put into savings or pensions.

Being a mortgage prisoner can leave you stuck in your home, and unable to move should you need to relocate for work reasons, or need a bigger property for a growing family, or even downsize if your family has left home. It can also leave couples who have decided to separate or get divorced stuck, living in a home that they cannot afford to move out of.

Help! I am a mortgage prisoner!

There is some good news. A range of new rules have been drawn up to help you – and there are several lenders, along with a host of financial advisers who have signed up to offer you the help you need.

However, there are some caveats – this won’t apply if you want to move to a new house, or if you have a buy-to-let mortgage. Interest-only mortgages may not be covered either.

Criteria will vary between lenders but in general, they are as follows:

  • You will have at least five years left on your mortgage;
  • The remaining loan must be £50,000 or more;
  • Your home must be worth £60,000 or more;
  • The loan to value must be 85% or less;
  • The loan must apply to an existing property (so this will not help you if you want to move house);
  • The names on the loan must stay the same (you can’t take one off or change it);
  • You must have made all monthly payments for 12 months (not including Covid deferrals or payment deferrals that were agreed with the lender).

Get help

If you would like to discuss how you can stop being a mortgage prisoner, J Finance is one of the 445 financial advisers that has signed up to help homeowners struggling to switch to a cheaper deal and we will be happy to help. Please contact us without obligation.

You can find the full list of mortgage advisers that have signed up to help mortgage prisoners here. The list can also be accessed via moneyadviceservice.org.uk.

Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across the South of England including Oxfordshire, Buckinghamshire and Hampshire. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email contact@jfinance.co.uk.

YOUR MORTGAGE IS SECURED ON YOUR HOME, WHICH YOU COULD LOSE IF YOU DO NOT KEEP UP YOUR MORTGAGE REPAYMENTS. BE AWARE THAT INTEREST RATES MAY CHANGE SO ENSURE YOU CAN KEEP UP REPAYMENTS.