Can’t afford to switch to a cheaper deal? Help on the way for (some) ‘mortgage prisoners’

Mortgage switching to be made easier

The Financial Conduct Authority (FCA) estimates there to be around 30,000 ‘mortgage prisoners’ in the UK, and a further 120,000 home buyers tied to a mortgage because it was taken out with a firm that is no longer authorised to offer mortgage lending.

Many of these borrowers took out a mortgage prior to the 2008 financial crash, their homes losing tens of thousands of pounds in value virtually overnight, making it impossible to sell the property.

Stricter affordability criteria within the mortgage lending industry, including the EU’s Mortgage Credit Directive, has left these home buyers unable to switch their mortgages to a cheaper deal, despite being up to date with repayments.

These numbers are set to grow as a new swathe of mortgage prisoners experience changes in work circumstances, such as moving to a zero-hours contract or self-employment. While these borrowers can continue their current mortgage arrangements, unless they are able to fulfil the affordability criteria of their lender they are locked into their current deal in the ridiculous situation of being unable to afford a cheaper deal!

Nearly sixty of the UK’s authorised mortgage lenders have now agreed a common standard that will help thousands of borrowers unable to free themselves from existing mortgage deals. More lenders are anticipated to join the group in the coming months, and borrowers known to be in this situation will be contacted by their mortgage lenders by the end of 2018.

It is estimated only 10,000 of the home buyers bought their property through a lender that is currently in the regulated mortgage market, qualifying them for help to switch their mortgage arrangements to another deal – albeit locked into borrowing from the same lender. It is hoped that the remaining ‘mortgage prisoners’, those whose lenders are inactive or unregulated, will be helped in the future.

To qualify for assistance under the new arrangements, the following criteria apply to customers who will need to be:

  • a first charge owner-occupier
  • an existing borrower of an active lender
  • on a reversion rate
  • looking for a like-for-like mortgage
  • up to date with payments

You must also have a minimum remaining term of two years and an outstanding loan amount of at least £10,000 and benefit from switching under current regulations and the law.

If you’re thinking of buying a new property, contact your local Property Surveying independent qualified Chartered Surveyor.


Back to August 2018 Newsletter