Mortgage Prisoners

Many borrowers currently find themselves categorised as a mortgage prisoner and have contacted us to ask what their options are. Should you find yourself in this situation, we have put together a few facts to help you to find out what you may be able to do.

What is a mortgage prisoner?

A mortgage prisoner is a term used to define a borrower who is up to date with their current mortgage but, due to the changes in lenders’ criteria following the 2008 financial crash, are unable to switch to a better deal. These borrowers are therefore deemed to be imprisoned or stuck with their current mortgage provider.

A recent investigation by the Financial Conduct Authority, as requested by the Government, gave an indication of the numbers involved. Of the 195,000 borrowers who have mortgage accounts with inactive lenders, the FCA estimates that there are:

• 66,000 who may be able to switch
• 30,000 who cannot switch but would be unlikely to benefit even if they could
• 47,000 are actual mortgage prisoners
• 34,000 are in payment shortfall and 18,000 are near term. These are defined as not being able to switch

What are your options if you are a mortgage prisoner?

If you are in the unfortunate position of being a mortgage prisoner there are a few things you may be able to do to increase your possible options:

1. Reduce your balance – Affordability and the loan to value (LTV) are areas of key influence when lenders assess you for a mortgage. If you do not meet a lender’s affordability criteria for your current loan size or you are above the maximum loan to value to enable a change, it may be worth considering a reduction to your loan amount where possible. The savings in interest charged on your mortgage could far outweigh any returns you may be getting on your savings.
2. Increase your term – Whilst this is not something that we’d usually recommend, it is an option for some where the reasons are justified. The term of your loan can affect a lender’s assessment of affordability, therefore, if you increase the term this may help just as reducing the loan amount does. Where the scheme permits, you can always overpay on your mortgage thereafter which in turn could reduce the period your loan is paid off, or physically reduce the term later down the line if income and affordability allows.
3. Downsize – Moving from your home is perhaps never an ideal thing to do if you like living where you are. However, if you are struggling to meet your obligations to make your mortgage payment, it could be that the amount of borrowing you have on your home is above your budget. By downsizing, and in turn reducing this liability it could hopefully provide you with a better quality of life. Indeed, you may not need to downsize as simply changing area can sometimes also give you a property at a lower value but still of similar size.
4. Find a lender with relaxed criteria for mortgage prisoners – Following the FCA review, new rules were set for lenders to be able to offer a more relaxed approach to those classed as mortgage prisoners. This is still an optional approach for lenders and as a guide, your situation will still have to meet the following minimum standards:
   1. A minimum 5-year term
   2. No mortgage arrears in the last 12 months
   3. A minimum balance of £50,000
   4. No increase to current lending permitted
   5. Maximum 75% loan to value
5. Boost your income – Generally we find that it is affordability or income that is the main stumbling block for mortgage prisoners. Therefore, it may be a worthwhile exercise to see if you can increase your level of earnings. Ideas such as second jobs or taking advantage of any overtime at work may help, although do expect a lender to want to see a track record of any increases, so they can see it is sustainable and not simply done as a means to an end for switching your loan.
6. Find someone to assist – Again, where income may be the main contributing factor, find a guarantor or, as is more commonly acceptable now, someone who will be added to the mortgage. This latter method is commonly referred to as a Joint Borrower Sole Proprietor where the joint applicant(s) are named on the mortgage but are not legal owners of the property. It may be that the person assisting may not be able to help in regard to income but could possibly help out in reducing the loan by means of a gift or, where acceptable by certain lenders, a loan.
7. Use a mortgage broker – By utilising a mortgage broker they can hopefully investigate all of the above options to see if any are viable for you, and indeed any other possible routes forward that may be applicable to your own individual circumstances. A mortgage broker can also put your best case forward and ensure your application is proposed in the best light possible to increase your chances of success.

We are here to answer any other questions you may have, get in touch.