Mortgage Prisoners: What You Need to Know!

12th Apr 2023

mortgage prisoners

It is thought that there could be more than 200,000 mortgage prisoners in the UK. These are homeowners who have found themselves trapped on expensive mortgage deals and unable to switch to a more affordable mortgage deal because they are not able to pass the stricter affordability tests by many other mortgage lenders.

Why have homeowners been left trapped on expensive mortgage deals?

Many affected homeowners purchased their property before the Financial Conduct Authority (FCA) introduced new mortgage affordability rules in 2014 following the financial crash in 2008. This change means that mortgage lenders use stricter affordability tests and assessments focusing on your income and expenditure to work out if mortgage repayments are affordable.

Unfortunately, some homeowners have found themselves unable to pass the stricter affordability assessments used by mortgage lenders as part of the mortgage application process when trying to remortgage, leaving them trapped on uncompetitive mortgage rates. For many mortgage prisoners, this means they are left paying their mortgage lenders’ standard variable rate (SVR) which is often significantly higher than the cheapest fixed-rate deals available. It also means their mortgage payments are variable and can fluctuate as the standard variable rate is determined by the mortgage lender. 

As a result of the financial crash in 2008, some mortgage lenders such as Northern Rock and Bradford and Bingley stopped lending or failed, meaning their mortgage loan books were either sold onto other firms or able to make any changes to mortgages taken out with them. These lenders are known as ‘inactive lenders.’ Other inactive lenders include Landmark Mortgages, Heliodor Mortgages and Mortgage Express.

Help for Mortgage Prisoners

In October 2019, the FCA proposed changes to the stricter affordability rules implemented in 2014. These changes are designed to help mortgage prisoners switch to a more affordable and cheaper mortgage deal by focusing on the homeowner’s mortgage payment history rather than the affordability assessment. 

Modified affordability assessments are allowing mortgage lenders to offer more competitive mortgage deals to mortgage prisoners but it is the decision of the mortgage lender to determine which mortgages mortgage prisoners are eligible for and not all mortgage lenders have agreed to sign-up to use the relaxed affordability assessments.

Are you a mortgage prisoner?

If you are a mortgage prisoner, it is likely you will have received a ‘mortgage prisoner’ letter before January 2020 confirming that you are unable to switch to a more affordable mortgage deal. Unfortunately, just because you have received this letter doesn’t mean you are automatically eligible to switch to a more affordable mortgage deal –  the reality is that the relaxed rules won’t help everyone currently trapped so many will remain imprisoned on their current mortgage deal. 

This is because mortgage lenders who are potentially able to help trapped homeowners using the new rules, have their own criteria that determine if you can benefit from the mortgage prisoner rule change. The criteria typically used by mortgage lenders include:

  • You have received a letter from your current mortgage lender explaining you are unable to switch but may be able to benefit from the mortgage prisoner rule change.
  • You have a minimum of five years remaining on your mortgage term.
  • There is a minimum mortgage balance of at least £50,000 outstanding on your mortgage and do not want to borrow any additional funds.
  • Your property has a minimum value of £60,000.
  • You do not owe more than 85% of the value of your home (this is known as loan to value). 
  • The mortgage is on your existing home and you still reside in the property. 
  • The mortgage is not a buy-to-let mortgage.
  • No borrowers have been added or removed from the mortgage since it was originally taken out.
  • You have no missed mortgage payments in the last 12 months.
  • You are able to show a clear repayment plan if you are on an interest-only mortgage and you want the mortgage to remain interest only. 

What are your options if you are trapped in an uncompetitive mortgage deal and believe you are a mortgage prisoner?

Help for mortgage prisoners is available, it just might be a little trickier. 

At The Mortgage Pride, we understand that not every mortgage prisoner is in the same situation. With over 20 years’ experience helping homeowners with their complex mortgage and insurance needs, we promise to:

  • Identify and confirm if you are a mortgage prisoner.
  • Understand your individual circumstances so we can confirm if you are able to benefit from the modified mortgage affordability assessments introduced by the FCA in October 2019.
  • Use our expert knowledge and experience of helping mortgage prisoners, to help match you to a suitable mortgage lender who may be able to allow you to switch to a cheaper mortgage deal based on your individual needs.
  • Explain all your options to you based on your individual circumstances.
  • Determine if there are alternative options available to you to secure a more competitive mortgage deal if you do not meet the ‘mortgage prisoner’ definition.

If you want to understand what help for mortgage prisoners there is, contact the complex mortgage experts at The Mortgage Pride today.

Read More: What is a mortgage in principle?

*Your home may be repossessed if you do not keep up repayments on your mortgage. You may have an early repayment charge to your existing lender if you remortgage early.