Are you one of the mortgage "prisoners"? Here’s what you need to know

An estimated quarter of a million people in the UK are so-called mortgage “prisoners”, according to UK Mortgage Prisoners, a grass roots campaign looking to help those trapped in expensive deals with no way of switching.

Mortgage prisoners are those stuck on expensive mortgage deals without being able to move to a cheaper alternative, through no fault of their own.

In the wake of the 2008 financial crisis, hedge funds bought up mortgages from failed banks such as Northern Rock and Bradford & Bingley. They then changed the terms for many of these mortgage holders, with the new lenders charging significant standard variable rates (SVRs).

Changes to affordability rules in 2014 then exacerbated the problem, further trapping mortgage holders on unfavourable deals as the new criteria made it harder to move to a cheaper option.

In combination, this means there are now 250,000 mortgage holders stuck on their lender’s SVR, paradoxically being told they can’t afford another deal – all the while paying these higher rates.

Fortunately, the Financial Conduct Authority (FCA) did introduce new rules in 2019 to help relieve the pressure on mortgage prisoners, which should help many get off their expensive tariffs.

If you think you may be a mortgage prisoner, here’s what you need to know.

Find out whether you’re eligible for the new affordability rules

To help mortgage prisoners get out of their current deals, lenders may now offer you a deal using modified, or “proportionate”, affordability checks.

While it isn’t exhaustive, the Money Advice Service have published a list of some of the modified criteria you may have to meet:

• You must have a minimum of five years and £50,000 left to pay on your mortgage.
• Your home must have a value of at least £60,000.
• Your loan-to-value (LTV) must be no more than 85%. If you’d like to know more about LTV, please see our previous article which explains how it may impact you in more detail.
• The mortgage must be on your current residential property. This means you can’t get a modified check if you’re moving home, or if your deal is on a buy-to-let (BTL) property.
• The named borrowers on the mortgage must be the same as when you took it out.
• You must have consistently made your mortgage repayments over the last 12 months. Missed repayments may impact your chances of getting a modified check. Please note: this doesn’t include payment deferrals that you agreed with your lender and were taken during the coronavirus pandemic.
• If you have an interest-only mortgage, you must agree a repayment plan with your lender. Interest-only mortgages are relatively rare in the market, so this is unlikely to impact you.
• Some lenders may require a letter from your current lender, confirming your eligibility for alternative affordability checks. The FCA required mortgage firms to write to mortgage prisoners and inform them that they may be able to switch deals. A new lender may request to see this letter to confirm you are eligible for the modified affordability check.

If you fulfil the criteria, a lender may be able to offer you a mortgage deal using one of these modified affordability checks. This could make you eligible for a cheaper alternative to your mortgage deal, meaning you can finally break free from paying your current lender’s SVR.

These criteria vary from lender to lender, so it’s important to check with different lenders to see which one will best suit you. A mortgage adviser is indispensable here, as they can scour the market for you and find the most appropriate deals for your circumstances.

Always scour the market, no matter what happens

With changes in the rules, you may find yourself able to find a better deal. As a result, you may now have more options than you have had for a while.

At this point, there are some key things for you to consider:

Just because your existing lender won’t help, doesn’t mean another won’t

Your current lender may be unwilling to offer you an alternative deal, even with the modified affordability check.

But, even if your current lender won’t offer you a deal, another lender may still be willing to help you. That’s why it’s important to see what else is available on the market.

Look at other options outside of what your current lender offers you

If your lender does make you a deal with a modified affordability check, you may be tempted to take whatever they’ve offered.

There are certainly benefits to taking a deal with your current lender; even with the high interest rate, you may feel you’ve had a good customer experience. Or you may want to avoid the inconvenience of having to shop around for a better deal.

However, there still may be a better deal available elsewhere that works for you.

This is another reason why it can be worth shopping around first.

Speak to a mortgage broker

Changing mortgage arrangements can feel daunting and confusing, especially if you’ve been stuck on a deal for a prolonged period and haven’t had to deal with switching for many years.

This is where the support of a mortgage adviser can be so important. At NM Money, we can search the market to help you find a deal that works for you. We can also offer advice on your specific circumstances that could help you meet affordability checks.

Need some help with your mortgage deal?

If you’re a mortgage prisoner and would like to know whether you could be paying less, please contact us at NM Money.

To speak to one of our experts, request a callback or call us on 03300 583 859.

Please note: Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.