A mortgage prisoner is someone who struggles to move their loan to another bank or building society. This could happen for a number of different reasons. We take a look at why and what actions you can take to help escape as a mortgage prisoner.
You are on an interest-only loan
Several years ago, lenders would let you take out a mortgage on the basis that only the interest would need to paid each month. The outstanding loan would then be paid off at the end of the 25 year term. Lenders would ask that you had a plan in place to repay the debt. This could be an investment or an expected inheritance, however checks were very loosely done.
Lenders have since cracked down on this practice with many not offering interest-only mortgages at all. Even if you have been putting money aside or have a concrete plan in place to pay off the loan, you may not find it so easy to remortgage if you are looking for a better deal.
You could consider switching to an repayment mortgage. With some favourable rates at the moment, you may find that this is still an affordable option. It also takes away the worry of how the outstanding payment will be made at the end of the term.
Yes, we know this happens to everyone, there is no escaping it. But your age could make you a mortgage prisoner. Lenders do unfortunately have maximum age limits. Some lenders won’t lend to anyone past retirement age. Others may be more lenient but tend to stop at age 75.
With the fight to get on the housing ladder becoming increasingly difficult for younger buyers, many are getting their first mortgage later in life. Or there are parents who have remortgaged their homes to release equity for their children.
If the end date of your mortgage runs over the maximum age for the lender, then you may find yourself stuck on an unfavourable rate until your mortgage is paid off. If you can afford to do so, whilst you are younger, you may want to consider shortening the term of your mortgage. This will increase your monthly payments now, but actually means your loan will be paid off sooner. This could also save you a significant amount in interest payments too.
Your home has dropped in value
Property is in such demand that many buyers have paid over the odds to ensure they get onto the property ladder. But if you’ve obtained a property with a small deposit, or property prices have decreased in your area, this could lead to being in negative equity. This means that your house is now worth less than what you paid for it.
In this situation, remortgaging is almost impossible. It will certainly be difficult to switch lenders, however it may be worth speaking to your current lender to see if they can offer a more favourable rate.
If you can afford to make overpayments on your mortgage, this will pay off the capital quicker and increase the equity you have in your home. This should increase your options for remortgaging.
Your employment status has changed
If you have recently started a new job or you’ve become self-employed you may find it difficult to remortgage. This is because you are unlikely to have all the paperwork you need to obtain a loan.
Most lenders want to see at least 2-3 years of accounts if you’re self-employed. If you can provide this evidence of regular income, you will typically get the same kind of interest rate as a standard employed person. If you’ve been in a new job, the lender will likely want to see at least 6 months worth of payslips that prove your income.
Trapped in your current mortgage – what can you do?
If you are currently stuck paying for a mortgage which you can’t switch from, it can be upsetting. Especially when you know that there are other deals out there that could make your mortgage payments much more affordable.
There is some support that has been made available for you as a mortgage prisoner. The Financial Conduct Authority have amended their lending rules to assist people who are trapped in their current mortgage. Using a modified “affordability assessment” lenders may now be able to assist applicants who meet the following criteria:
- Have a current mortgage and be up to date with your loan payments
- No missed payments in the last 12 months
- Not wanting to borrow any more money than you actually need to finance your home
If you are unsure of what your options are it’s worth seeking independent advice. A mortgage broker, with their vast knowledge of the mortgage market, could help you to find a lender whose criteria match your current circumstances.
The above post does not constitute advice – financial, legal or otherwise. The information within this article is the author’s own opinion and do not necessarily reflect the views of SO Media or So Smart Money.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE