Mortgage prisoners may get early release

January 10, 2020
Taryn Lee-Johnston

The introduction of new “affordability” criteria for mortgages created the, arguably rather farcical, situation of some people being told that they could not remortgage to a cheaper deal because they could not afford it and thereby being forced to continue using a more expensive mortgage product.  These people have become known as “mortgage prisoners”, but now there is, at last, hope that they may get an early release from this ludicrous situation.

The FCA is working with lenders to introduce more appropriate affordability assessments

Mortgage prisoners who have demonstrated the ability to manage their current repayments and who do not wish to borrow extra funds are to be given an affordability assessment which should better reflect their situation.  Hopefully this will open the door to them being able to access better deals, which could save them money and/or provide better security (for example, longer-term, fixed-rate deals).

It can still pay to improve your standing as a borrower

Regardless of what action the FCA ends up taking or what impact it has on lenders, the simple fact of the matter is that companies generally keep their best deals for their best customers.  It can therefore make a lot of sense to do everything you can to make yourself as attractive a customer as you can possibly be, especially when dealing with “big-ticket” items such as mortgages.

Try taking a long, hard look at your financial management to see if you can make any “wins”

The less you need to borrow (both objectively and as a percentage of the value of your home), the easier it is likely to be to persuade a lender to say “yes”.  If you’re a first-time buyer or regular mover, that will typically mean building up as big a deposit as you possibly can.  If you’re a mortgage prisoner looking to break free, that will typically mean paying down your current mortgage to the point where you do meet the standard affordability criteria and can, therefore, access the “open market” of mortgage products.

Even if you think you’re really making every penny count, it never hurts to double-check and to think hard about any sacrifices you could make, no matter how small.  Little wins are still wins and do add up, although it can take a while.

Do everything you can to polish your credit record

Your credit record will not just influence your ability to get a mortgage, it may also influence your ability to access other products and services, which might be very useful to you in your situation.  For example, if you’re currently paying down debt on a credit card, then a good credit rating could make it possible for you to get a product with a lower interest rate (or possibly even a 0% balance-transfer deal).  This could give your finances a helpful boost and help you to ease your way out of crippling debt.

Dealing with negative equity

If you are in negative equity, then it is strongly recommended that you get professional advice before taking any final decisions on how to go forward.  In principle, if you can afford the repayments, then it may make sense to stay in your current home and let time and inflation sort the problem.  The risk here is that there may come a point when you cannot afford the repayments, in which case your home may be repossessed and could potentially be sold for much less than you would have received had you dealt with the sale yourself.

In principle, if you sell your home when you are in negative equity then you are obliged to make up the shortfall, however, you may find that your lender might be willing to let you make repayments over a period of time at a rate you can reasonably be expected to afford. 

Your home may be repossessed if you do not keep up repayments on your mortgage.