Are you a Mortgage Prisoner? Here’s How You May Get out of Your Trap
Are you a ‘mortgage prisoner’? Have the stricter lending rules or an inactive lender locked you into your current mortgage deal with no hope of being allowed to find a cheaper deal elsewhere?
Here’s how you may get out of your trap.
From 28th October 2019, the Financial Conduct Authority (FCA) has removed some of the barriers to enable the so-called mortgage prisoners to free themselves.
The New Rules
Following the 2008 financial crisis, mortgage affordability checks became more inflexible and new rules restricted lending criteria. So if you applied to switch, you suddenly no longer met the benchmarks for the new loans.
You could only watch as interest rates plummeted, and you were left behind to pay rates significantly above the market.
Under the new rules, the FCA is allowing lenders to use modified affordability assessments. These can help you if you are locked into a mortgage taken out before the financial crisis of 2008.
Mortgage lenders can now use relaxed affordability assessments if you fulfil the following criteria:
- You are up to date with your mortgage payments
- You do not want to borrow more money
- You want to remortgage rather than move home
In addition, the FCA is also enforcing new rules for inactive lenders and unauthorised firms. They have to advise their trapped customers that they can now switch away from them. This will be good news for former Northern Rock and Bradford and Bingley borrowers who saw their loans being passed on to unregulated firms.
The Good News
These changes are good news for you if you are stuck in a mortgage arrangement that doesn’t suit you and you’ve been trying to get out of for some time.
You may finally be able to search the mortgage market to find the right product for you. This could put an end to the needlessly high repayments you’ve so far had to make on your home loan and save you hundreds of £s a month.
Letting you, the former mortgage prisoners, re-enter the mortgage market could also ignite competition among the lenders – a great way to benefit all consumers.
And if you are finally eligible to look for a better deal, you can also finance any intermediary fees, as well as product or arrangement fees, through your new mortgage.
Good news all around? Well, as these rules are new, some areas still need ironing out, and concerns have already been voiced within the industry.
Some industry experts feel that there is a risk that the changes may raise the wrong expectations if you are on reversion rates. You may find you are unable to secure a new mortgage, especially if you are in negative equity, in current or recent arrears or on an interest-only mortgage with no repayment strategy.
Further work needs to be done to help those who are disadvantaged but unlikely to benefit from the new rules.
The All-Party Group on Mortgage Prisoners has released a statement
demanding that “mortgage prisoners must be informed clearly and quickly about their new chance of escape and given the names of the lenders applying the new modified affordability test.”
They also raise concerns that the changes are not enough, as they won’t help 90% of affected consumers. The reforms could only work if the Government expands the scope, and the FCA uses its powers to get everybody a fair deal.
At present, lenders can choose whether they use the modified affordability assessment. As the reforms are not compulsory, it will, therefore, depend on each bank or lender whether they adopt them or not.
There’s also the consideration that the damage done by years of mortgage overpayments could mean that many of the mortgage prisoners are now unattractive to most lenders. This could also prevent them from accessing the most competitive rates.
There are still too many so-called mortgage prisoners who will not benefit from the new rules. More work needs to be done to save the 100,000 or more consumers still trapped in their finance arrangements.
Good news if you are in the catchment area; even more frustrating if you are not.
If you need help with finding out if you are eligible under the new rules, get in touch. Our mortgage expert will be able to advise you.