Head of Content
Mortgage Advisor & Director
What is a mortgage prisoner?
A mortgage prisoner is someone who is trapped in their current mortgage and cannot switch to a new deal. Mortgage prisoners are much more common in recent years.
Before the global financial crisis of 2008, affordability assessments were different. Self-employed people could self-certify their income and banks were willing to lend on a higher Loan to Value (LTV) basis. In some scenarios, this exceeded the value of the property itself, meaning an LTV of more than 100%. For these homeowners, this left them with no equity whatsoever in the property. The same was also true for many people on interest-only deals. For many those on an interest-only deal, this was also the case.
Banks were also more willing to lend more as a calculation of salary; far exceeding the standard 4.5 times you can expect to be offered today.
As a result of the financial crisis, new assessments on affordability and eligibility were introduced by banks for potential borrowers.
Now, you must pass strict affordability checks before you are approved for a mortgage. Lenders assess your credit file and perform additional checks such as stress-tests to ensure you'll be able to meet mortgage repayments both now and in the future.
How do you become a mortgage prisoner?
If your financial circumstances have changed, you may no longer meet the lender's requirements and are at risk of becoming a mortgage prisoner. It may be that you are on a Standard Variable Rate (SVR) and paying more than you would be if you were to remortgage, yet still not pass the affordability checks. In this situation, you are a mortgage prisoner as you are unable to remortgage.
There are other situations where you are at risk of becoming a mortgage prisoner.
- Losing your job or taking a pay cut will affect how much you're able to borrow.
- If the value of your property reduces to the point that leaves you with little to no equity.
- Life changes such as divorce or relationship breakdown where you are looking to remove someone from the mortgage.
What help is there for mortgage prisoners?
If you're a mortgage prisoner, there are a few things you may consider to help your situation.
- Reduce your debt and minimise outgoings - this will help the affordability assessment performed by lenders.
- Negotiate a pay rise or take a higher-paid job - you'll be able to borrow more as a ratio of salary.
- Overpay on your mortgage - you'll need to check if you will be subject to any penalties as a result of overpayments.
- Increase the equity in your home - this will reduce the risk for the lender and will make you a more credible borrower.
- Consider downsizing - By moving to a lower-priced property, you'll reduce your mortgage repayments and increase equity.
Some of these tips are easier said than done, and that is why the FCA stepped in to help mortgage prisoners. The FCA released guidance in 2019 following consultation with lenders. Their new advice is designed to release mortgage prisoners who are up to date with payments, remaining in their property and not intending to borrow more money.
How can I learn more?
At Teito, or team have experts have helped many mortgage prisoners to find a way out of their situation. As a whole-of-market broker, we work with hundreds of lenders, many of which cater to non-standard or specialist requirements. To get started, complete our simple online form and start comparing deals.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.
