Do you think you're a mortgage prisoner? We've put together some frequently asked questions to help you understand more.
A mortgage prisoner is a homeowner who is up to date with their current mortgage payments but stuck in their current mortgage deal because they don’t meet the strict affordability rules that were introduced by the FCA in 2014.
If you took your current mortgage out before 2014 and are now finding it hard to switch to a new mortgage deal, even though you are up to date with your payments, you could be classed as a mortgage prisoner.
No, the affordability assessment used when you took out your mortgage was under the same stricter rules used today. It is likely you are struggling to re-mortgage because of a change in your circumstances, for example, your income might be lower or perhaps your outgoings have increased.
An affordability assessment or test looks at your income and expenditure to decide if you can afford the mortgage repayments.
The rules became stricter, which means you may have passed the affordability test when you first got your mortgage prior to 2014 and you may not now.
The affordability test considers whether you will be able to afford the monthly payments in the future. It is not based on whether you can afford the payments at the fixed interest rate you may originally start on. It will look at the lenders current variable rate and add an extra 3% to take into consideration future rises in the interest rate. The test will assess whether you can afford the monthly payment at this ‘stressed’ future interest rate.
For example. If the initial rate was fixed for 2 years at 2%, and the variable rate was 3.5%, your affordability would be tested at 6.5%. 3% more than the variable rate of 3.5%.
For an average £200,000 mortgage over 25 years, the test will look at whether you could afford monthly payments of approximately £1,351 instead of the £842 you may be required to pay in the fixed rate period.
Yes, the rules were put in place by the FCA to make sure mortgage payments continued to be affordable if interest rates were to rise.
In October 2019 the FCA introduced changes to the rules for those who were trapped in a mortgage they took out before 2014. The new rules, sometimes referred to as ‘modified affordability’, give lenders some flexibility and means they could assess you based on your mortgage payment history rather than the affordability assessment.
No, you can only switch the amount you currently owe on your mortgage.
No, mortgage lenders can only help those who are up to date with all their mortgage payments and have been for the last 12 months.
If you are struggling with your mortgage payments, please contact us on 0333 300 0468 so we can be sure we are providing you with the right support. You can also get free impartial advice from an independent organisation or charity.
Visit MoneyHelper, formally The Money Advice Service, and complete their eligibility tool. MoneyHelper also offer the option of a webchat via their site or you can call them on 0800 138 1677.
The best way of finding a new mortgage is to speak to an independent mortgage adviser who can look at a range of different lenders and recommend the best option for your circumstances. A list of mortgage advisers can be found at www.unbiased.co.uk
No, criteria will vary from mortgage lender to mortgage lender, which is why it is helpful to speak to an independent mortgage adviser who has access to a range of different mortgage lenders. Visit www.unbiased.co.uk for a list of mortgage advisers.
