What is a mortgage prisoner?

Homeowners who are labelled as ‘mortgage prisoners’ are usually people who took out their mortgage before 2008 and are locked in their current deal which does not offer the ability to switch to any cheaper ones, or remortgage to a new lender even though they are up to date with their payments.

If your financial circumstances have changed, this may prevent you from passing a new lender’s affordability assessment. This means that when you try to apply for a cheaper deal, you are trapped in your existing mortgage due to the new rules preventing you to do so even if a remortgage could get you a cheaper deal.

Am I a mortgage prisoner?

Have you been told in the past you cannot switch to a cheaper deal?

Did you purchase your home, before the changes of the stricter affordability rules in 2014?

These may be questions to ask yourself if you are wondering if this could be happening to you.

If you are affected, you may have received a letter before January 2020 informing you that you are unable to switch and that you may benefit from these changes.

Financial Crisis – 2008

After the financial crash in 2008, the rules on mortgage lending was tightened meaning borrowers had to pass strict affordability assessments before they could be approved for a mortgage. Lenders examined their customer’s credit files to make sure they could afford to keep up to date with their monthly mortgage repayments.

When the interest rates were intensely reduced it meant there were some very cheap mortgage deals out there, but many people who didn’t pass the affordability checks were unable to gain from them*.

Is there any help for mortgage prisoners?

In October 2019, the FCA announced a new revised affordability assessment which might help give some borrowers the chance to switch to a cheaper deal**.

The new rules allow lenders, if they want to, to refrain from certain affordability checks, such as studying income and expenditure. Instead, other standards can be looked into, like an up-to-date mortgage payment history.

There are many ways you can help yourself if you are a mortgage prisoner including:

• Attempt to pay off your mortgage early – find out from your lender if there are any charges for overpaying on your mortgage payments.
• Decrease other debts and outgoings – this can help you to pass a lenders affordability assessment.
• Enquire about a pay rise – to help increase the maximum amount that you can borrow.
• Consider a smaller property – downsizing or moving to an area with cheaper property prices***.

Not every mortgage prisoner is in the same situation. In fact, some do have different options available to them due to some rule changes.

Exploring your options with a mortgage adviser will help reassure you on how to deal with being a mortgage prisoner.

 *Source – Bankrate.com

**Source- Moneyhelper.com

***Source – Bankrate.com

 Approved by The Openwork Partnership on 21/07/2023