You may have seen the term "mortgage prisoner" used in newspapers recently, to describe unfortunate homeowners who want to remortgage but do not meet the criteria to be accepted for a new loan.
Back in 2014 and 2016, changes were made to the way lenders assess mortgage affordability. Rather than being based on multiples of your income as it was previously, lenders now look at your income and your outgoings, assessing your ability to keep up repayments should interest rates go up or your personal circumstances change. This means that some people who took out a mortgage loan before the criteria changed, now find that they are not eligible for a new deal. They then get moved onto the lender’s standard variable rate (SVR) when their current deal ends, which is typically more expensive. Hundreds of people have found themselves in this position – paying more than they need to and sometimes struggling to keep up with the increased payments.
There are many reasons you might want to consider remortgaging. Maybe your existing deal is about to end, you might want to borrow more, or you might just want a better interest rate. However, you may find that it’s a struggle to find a new deal, for several possible reasons.
Why You Might be a Mortgage Prisoner
- You don’t meet the criteria for a new loan – If you took out your mortgage before 2014, you might find that you no longer meet the affordability criteria to be accepted for a new deal.
- Your personal circumstances have changed – Changes in personal circumstances can have a significant impact when it comes to affordability. For example, if you’ve recently had a child, the addition of another dependent will reduce the amount you’re eligible to borrow.
- You have an interest-only mortgage – Following the financial crisis, lenders became concerned about borrowers not being able to pay at the end of the term. As a result, borrowers now need a robust repayment strategy.
- You’re self-employed – As a self-employed borrower, you need to provide solid evidence of past, present, and future earnings. This has become increasingly the case since the rules changed.
How to Break Out of the Mortgage Prison
- Keep a good payment history – As long as you don’t want to borrow more, being able to prove you’re a reliable borrower should play in your favour, especially if you’ve paid off a decent portion of your mortgage.
- Improve your credit score – Keeping a good repayment history across all your credit accounts will massively improve your chances of being accepted for a new loan. Managing your debts responsibly will reassure lenders that you’re a reliable borrower.
- Reduce your outgoings – Eliminating any unnecessary expenses and adding the extra cash to your savings will make you less of a risk in the eyes of potential lenders.
- Get some free help – A fee-free mortgage broker can help you to find the best possible deal for your circumstances. If you’re struggling, ask for help!
We’re a leading mortgage advice service in the north-west, with offices in Preston, Garstang and Southport. We’re a completely independent mortgage advisor and we have access to the whole of the mortgage market. Even better, in most cases, our advice is completely free!
So, whether you’ve found yourself to be a mortgage prisoner or you're just looking for a great deal, get in touch and we’ll help you!
