Help for mortgage prisoners

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

Affordability tests, or assessments, look at your income and expenses to work out if you can afford the mortgage repayments.

Since 2014, these tests have been made much stricter. This means that while you might have passed the affordability test when you first got the mortgage, you might not now.

In October 2019, the Financial Conduct Authority (FCA), introduced changes to the rules which might help some borrowers switch to a more affordable mortgage deal. These new rules are based on your mortgage payment history, rather than the affordability assessment.

If you’re affected, you will have received a letter before January 2020 confirming that you are unable to switch and that you might benefit from these changes. 

If you have received a letter, it doesn’t mean you’re automatically eligible to switch to another lender.

If you have received the ‘mortgage prisoner’ letter and apply to switch your mortgage, lenders will use different criteria to decide whether they will accept your application. These vary from lender to lender, but might include:

• A copy of the letter your mortgage firm has sent you explaining you are unable to switch and might benefit from the recent rule changes.
• A minimum of five years remaining on your mortgage.
• Remaining mortgage of at least £50,000.
• Minimum property value of £60,000.
• A loan to value (the amount you want to borrow compared with the value of your home) of no more than 85%.
• The mortgage being on your existing home (so not available for home movers or if you’re currently letting out your home).
• Not having a buy-to-let mortgage.
• No changes to who took out the original mortgage (no borrowers added or taken off the mortgage).
• No missed mortgage payments in the last 12 months. This doesn’t include payment. holidays (deferrals) agreed with your lender and taken due to the coronavirus outbreak
• Being able to show a clear repayment plan if you are on, and want to remain on, an interest-only mortgage.

If you’re on an interest-only mortgage, most 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 can’t show a repayment plan, it’s unlikely that you’ll be able to benefit from new switching options.

However, some lenders might be able to offer options that include switching part of your mortgage to repayment (capital and interest). 

This 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 remortgage in the future.

If you’re worried you won’t be able to repay the mortgage, or you have less than five years before the end of your mortgage term, act now to understand your options and what you can do to improve your position.

Acting 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.

If you feel you are a mortgage prisoner because you’re struggling to switch to a new lender, or you have an interest only mortgage you can’t repay, get in touch. We can signpost you to expert guidance to explore your options.

If you have a buy-to-let mortgage, you will not be eligible under these rules.

If you currently have a residential mortgage with ‘consent-to-let’, and plan to continue letting out your property, you will also not be eligible for these changes.

Mortgage lenders can carry out a modified affordability assessment if you:

• have received a 'mortgage prisoner' letter from your mortgage firm
• have a residential mortgage on your home
• are up to date with your mortgage payments and have been for the last 12 months
• don’t want to borrow more – other than to pay for any fees associated with the mortgage
• are not looking to move home.

Lenders can use these rules to offer you a new mortgage as long as it will be more affordable for you than your current deal.

The offer of any new mortgage is a decision for lenders, so what’s on offer will vary between firms and not all mortgage prisoners will be eligible for all mortgages.

There are a number of other ways a lender might be able to help. For example, a lender could:

• Consider other options if you're an older borrower, 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.

Whatever your circumstances we want to ensure you get the specialist mortgage advice you need as quickly as possible. So, you need to act now if: 

• You haven’t received a mortgage prisoner letter but are struggling to switch to a more affordable mortgage. 
• You have a poor credit history and want to know what help you can get.  
• You've got an interest only mortgage, no repayment plan and need advice.
• You are over 55, as there may be alternative mortgage products available to you, including those specifically for older borrowers, such as Lifetime mortgages (also known as Equity Release) and Retirement Interest Only mortgages. 

To discuss your options with an FCA-regulated mortgage adviser free of charge you can contact StepChange Financial Solutions (part of the StepChange debt charity). They give free and impartial mortgage and re-mortgage advice and can research all of the mortgage market. 

The mortgage adviser will take the time to understand your personal circumstances and your financial situation and guide you through the entire process, making sure the type of mortgage is right for you and only recommending a product that is suitable for your needs and circumstances, so you can feel confident you’ve made the right decision. 

They’re also regulated to give debt advice so can help resolve any money problems you may have too.

If you’ve received a mortgage prisoner letter and want to discuss your options with a regulated mortgage adviser, download a list of firmsOpens in a new window (PDF, 33MB) able to discuss your options in more detail.

Mortgage advisers might charge you for their service, depending on the product you choose or the value of the mortgage. This charge could be a flat rate or hourly rate, or a percentage of the amount you borrow.