Mortgage Prisoner

Mortgage Prisoners

If you took out a mortgage to buy your home before 2014 and are now finding it hard to switch from your current mortgage to a better deal, even if you’re up to date with your payments, this might be because of new tougher affordability rules introduced by the FCA.

Affordability tests or assessments look at your income and expenses to determine if you can afford the mortgage repayments. Since 2014, these have been made much stricter, which means while you might have passed the affordability test when you first got the mortgage, you might not now but don’t fret, there is help for mortgage prisoners. In October 2019, the Financial Conduct Authority (FCA), introduced changes to the rules which might help you switch to a more affordable mortgage deal. These new mortgage lending rules are based on your mortgage payment history, rather than the affordability assessment.

Many mortgage firms have been required to write to customers who are unable to switch and may benefit from these changes. If you have received a letter, it does not mean you are automatically eligible for these changes.

Interest-only mortgages

If you are on an interest-only mortgage, new lenders will expect you to have a repayment plan to repay the outstanding mortgage at the end of its term and be able to provide proof of your ability to repay.

If you do not have this, it is very unlikely that you will be able to benefit from new switching options. New lenders will not take on new interest-only mortgages without a repayment plan. If this is the case, you should speak to your existing lender to discuss your options.

Some mortgage lenders may be able to offer options that include switching part of your mortgage to repayment (capital and interest), which will increase your monthly payments but leave you in a better position to repay your mortgage later or by arranging to make overpayments to reduce the overall debt which could make it easier to re-mortgage in the future.

If you are worried you won’t be able to repay the mortgage, and/or you’re at or near the end of your mortgage term, you should act now to understand your options and what you can do to improve your position. Taking action early will put you in the best possible position at the end of your mortgage or improve your options to get a new better mortgage deal in the future.

What other switching options are available?

If you’re able to demonstrate the mortgage (including repayment plans) is affordable there are a number of other ways a lender might be able to help. For example, a lender could:

• simplify how they check you can afford your mortgage if interest rates go up
• consider other options for older borrowers, for example retirement interest-only mortgages or equity release
• consider total or partial conversion to repayment from an interest-only mortgage
• look at each application on an individual basis instead of using an automated approach.

If you are struggling to pay your mortgage or are in arrears

If you are finding it difficult to pay your mortgage, or are already behind on payments, it’s important to take action as soon as possible.

If you haven’t already, make sure you contact your lender to talk about your options.

You can also speak to one of the advisors at the Mortgage Advice Service on 0800 138 7777, or WhatsApp +44 7701 342744 for more help and guidance.