Are you a mortgage prisoner?

A “mortgage prisoner” is someone who, despite being up-to-date with their mortgage payments, finds themselves unable to switch to a new, more affordable mortgage deal. This situation typically arises due to stricter lending criteria introduced after the 2008 financial crisis. Before the crisis, mortgage lending was much more lenient, with some lenders offering 100% or even 125% of the property’s value, which meant borrowers could get a mortgage without a deposit. However, after the crisis, the rules were tightened significantly to prevent risky lending practices.

These stricter rules meant that if you took out a mortgage under the old, more lenient criteria, you would no longer qualify for new deals under the current, more stricter criteria. This can happen for a variety of reasons, such as changes in financial circumstances (like becoming self-employed or having a reduction in income) or because your mortgage might be  with a lender that no longer offers new deals. Some mortgage prisoners are stuck with high interest rates that make their monthly payments significantly higher than they would be with a new deal.

The term “mortgage prisoner” aptly describes the feeling of being trapped in an unfavourable financial situation with no apparent means of escape. Despite making regular payments and being a good borrower, you would not be able to take advantage of any better deals that could save you money.

There have been some efforts to help mortgage prisoners. For instance, the Financial Conduct Authority (FCA) introduced changes in 2020 to allow lenders to base their decisions on a borrower’s payment history rather than conducting a full affordability assessment. However, not all lenders have adopted these new rules, and the availability of solutions can vary widely.

For those caught in this predicament, there are a few strategies that might help. Overpaying your mortgage, if possible, can reduce the principal and increase equity, making it easier to qualify for a new deal. Improving your credit score and reducing other debts can also enhance your chances of securing a more favourable mortgage. Consulting with a mortgage broker who understands the market and the specific challenges faced by mortgage prisoners can provide valuable guidance and access to lenders who might offer more flexible terms.

Understanding your options and taking proactive steps can sometimes provide a pathway out of mortgage prison. While it’s a challenging situation, being informed and seeking expert advice can make a significant difference.

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