Help for mortgage prisoners

If you can’t switch to a more affordable mortgage, despite being up to date with your payments, new rules from the Financial Conduct Authority (FCA) mean lenders have more flexibility to help you switch mortgage.

Who is a mortgage prisoner?

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 determine if you can afford the mortgage repayments.

Since 2014, these 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 you switch to a more affordable mortgage deal. These new rules are based on your mortgage payment history, rather than the affordability assessment.

Many mortgage firms have been required to write to customers who are unable to switch and might benefit from these changes. If you have received a letter, it doesn’t mean you’re automatically eligible for these changes.

Am I eligible under the new rules?

Lenders will use a variety of different criteria to decide whether they will accept your mortgage application. These vary from lender to lender, but might include:

  • a minimum of five years remaining on the 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)
  • no changes to the borrowers (no borrowers added or taken off the mortgage)
  • no missed mortgage payments in the last 12 months. This doesn’t include payment deferrals agreed with your lender and taken due to the coronavirus outbreak
  • your mortgage isn’t a buy-to-let mortgage
  • a clear repayment plan if you are on, and want to remain on, an interest-only mortgage
  • some lenders requiring a copy of the letter your mortgage firm has recently sent you explaining that borrowers who are unable to switch might be able to benefit from the recent rule changes.

Interest-only mortgages

If you’re on an interest-only mortgage, 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 don’t have this, it’s very unlikely that you’ll be able to benefit from new switching options. New lenders will not take on new interest-only mortgages without a repayment plan. If this is the case you should speak to your existing lender to discuss your options.

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, and/or you’re at or near the end of your mortgage term, act now to understand your options and what you can do to improve your position.

Taking action 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.

Buy-to-let mortgages

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.

How could the changes help me?

Lenders can now use a modified affordability assessment, which means they can choose not to ask for evidence of your income and expenses or apply a stress test. A stress test requires a lender to check that you can continue to make payments should the interest rate on your mortgage rise.

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

  • 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.

Lenders don’t have to use the new modified affordability assessment. Some will choose to help you by making other changes to the way they assess affordability. 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.

What other switching options are available?

If you’re able to demonstrate the mortgage (including repayment plans) is affordable, there are a number of other ways a lender might be able to help. For example, a lender could:

  • simplify how they check you can afford your mortgage if interest rates go up
  • consider other options for older borrowers, 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.

How do I get help and what do I do next?

If you want to discuss your options with a regulated mortgage adviser, download a list of firms who have an adviser able to discuss your options in more detail (PDF, 918KB)

If you’re struggling to pay your mortgage or are in arrears

If you’re finding it difficult to pay your mortgage, or are already behind on payments, it’s important to take action as soon as possible.

If you haven’t already, make sure you contact your lender to talk about your options.

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impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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