When you already have a mortgage, but you aren’t eligible to move to a new deal, you can end up trapped on high fixed or standard variable rates and end up paying much more than others who can switch. 

The Financial Conduct Authority (FCA) estimated that there were 190,000 mortgage prisoners in the UK in 2021.

While the situation can feel impossible to escape – there is an increasing number of ways to manage the situation.

Keep reading to find out what causes mortgage prisoners and how they can be helped.  

What are mortgage prisoners?

Mortgage prisoners are people who are essentially trapped in expensive mortgage deals.

They are unable to switch to a cheaper deal, even when they are up to date with their payments, due to not passing current strict affordability tests.

As a result, a mortgage prisoner often spends tens of thousands more than a non-mortgage prisoner over the lifetime of their mortgage. 

What causes them?

Mortgage prisoners cannot switch because they no longer pass a lender’s affordability rules. 

Typically, they took out mortgages before the 2008 financial crisis, where lending rules were much more relaxed, and people could borrow a lot more.

With stricter affordability tests, many people who already have mortgages are no longer eligible for new mortgage deals.

Someone may also become a mortgage prisoner if their circumstances changed after they took out a mortgage deal, for example if they lost their job, or there is a decrease in the property value.

How can you escape?

There are ongoing campaigns and legislation changes to help mortgage prisoners escape unaffordable deals.

If your lender is still active and offering new mortgages, you may be able to switch to new deal on a like-for-like basis – that means no extra borrowing and the mortgage must be on the same property. If your lender is inactive (ie no longer offers new mortgages), you’ll need to switch to a new lender to possibly get a lower interest rate.

New rules from the FCA allow lenders to carry out a ‘modified affordability assessment’ to relax certain affordability checks and help mortgage prisoners change to new deals. However, it is the lender’s choice whether to do this or not.

There are steps you can take to increase your attractiveness to lenders and increase your chances of being given a new deal, such as:

• Reduce debt and other outgoings
• Ensure you are up to date on payments
• Increase your equity – the portion of your home that you own.

We would always recommend talking to a mortgage adviser about available deals first – even if your lender is active, switching to a new lender may be more beneficial for your individual circumstances.

Becoming a mortgage prisoner can take a toll on your wellbeing and financial future. However, there are an increasing number of opportunities open to help you to navigate through the situation.  

To talk to an adviser and get personalised support and advice, get in touch or call 0121 285 8528 to talk to our team.

Disclaimer: As a mortgage is secured against your property, it could be repossessed if you do not keep up the mortgage repayments. Whateley Wealth Management is not responsible for any external site content.

 

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