Mortgage prisoners

Essentially, the FCA considers you a mortgage prisoner if you cannot switch from your current mortgage to a new one, typically due to affordability or property-related issues.

You might already be on the lender’s standard variable rate (SVR) or be a customer of an inactive lender, who owns and collects mortgage debt, but can’t give a new mortgage or offer you a new deal. Most of the original lenders went bust during the 2008 financial crisis when they collapsed and sold their loan books to 3rd parties.

If you are a mortgage prisoner, then your lender would have written to inform you of the new changes and how they could benefit you. Some lenders require this letter when you apply for a new mortgage, so keep hold of it.

According to the Financial Conduct Authority’s (FCA) estimate, there are around 250,000 mortgage prisoners with inactive lenders or asset management companies.

The FCA guidelines for mortgage prisoners may apply to you if you can’t switch lenders or can’t secure a new deal to benefit from a lower interest rate and lower monthly payments, or both. This may be because

• Your mortgage balance is too high compared to the property value. For example, your mortgage balance is £190,000, and the property is worth £200,000.
• Your mortgage balance is too high compared to your household income. For example, you earn £30,000 per annum, so a £190,000 mortgage is over six times your income, which is not usually acceptable for lenders.
• Your property is not deemed safe under the new cladding safety guidelines, or it has recently started to show signs of movement.
• Your mortgage is on an interest-only basis and is over 50-75% of the property value. Lenders would not normally give you a mortgage under this scenario.
• You and your ex-partner are on the mortgage together, you are unable to remortgage without their income, and they are unwilling to sell the property.

The good news is that in most of these cases where you can’t get a remortgage deal from a different lender, we can still help you secure a new one from your existing lender.

If your lender cannot offer you a new deal, and you can’t remortgage to another lender due to your circumstances or the property itself, then we can still help. You could qualify as a mortgage prisoner and benefit from the new affordability rules introduced by the FCA.

Following the Financial Conduct Authority’s (FCA) new guidelines for mortgage prisoners, several lenders have adopted a modified affordability assessment to help mortgage prisoners. This, amongst other measures, allows for a higher income multiplier than what the lender would usually accept.

If you are unsure whether you are eligible and would qualify, we suggest you get in touch with one of our expert advisors to go over your options and use their expertise to secure a better deal.

The FCA has an official page for mortgage prisoners with more details of the new guidelines. The page also lists us as a mortgage broker firm committed to helping mortgage prisoners.

No, you don’t have to. However, we have specialist knowledge of the mortgage market including access to all lenders who help mortgage prisoners.

We also assess your options with all lenders without you having to speak to all lenders individually. In other words, we save you time and money and provide specialist advice throughout your remortgage journey.

No. Whilst the Financial Conduct Authority (FCA) is encouraging all lenders to adopt the modified assessment rules for mortgage prisoners, only a handful of lenders have done so.

The answer will depend on your circumstances, so it is a good idea to speak to a mortgage broker – like us – to find out what you could be eligible for.

If you missed a mortgage payment within the last 12 months, then you won’t be eligible to apply for a new deal under the mortgage prisoner rules. You will have to wait until you have made 12 consecutive mortgage payments on time and in full.

Yes. If you took advantage of the mortgage payment holiday that the government made available to everyone in 2020 due to the Covid-19 pandemic, then you won’t be penalised and could apply for a mortgage prisoner deal.

Yes, you could potentially remortgage to a better deal. You could do this through the mortgage prisoner route or by switching to a retirement interest-only (RIO) mortgage or equity release.

Once we review your situation, we will be able to advise you regarding your options and take you through all the steps needed to secure a better deal.

Lenders have various conditions attached to interest-only mortgage deals: they would normally want a minimum level of equity in the property, minimum income and may limit the mortgage to 50-75% of the property value.

However, if you are an eligible mortgage prisoner and just looking to get a better deal without borrowing more, you could do so based on the mortgage prisoner rules.

It is true that if you repay or remortgage only the part, which is on an interest-only basis, the interest rate for the other part shoots up. However, you could potentially remortgage both mortgage parts to a lower interest rate deal.

Homebuyers normally used Together mortgages to borrow 100-120% of the purchase price pre-2008. However, as the part on repayment basis would have reduced since you took out the mortgage and, in most cases, the property value has increased, it is likely that the two parts together are now way less than the property value. Because of this, a remortgage is now possible for most clients.

Remortgaging as a mortgage prisoner is very similar to doing a “normal” remortgage.

• We assess your situation and options
• We agree on the deal to go for and collect the necessary information and documents
• We apply for the mortgage on your behalf
• The lender assesses your details and documents, values the property and issues the mortgage offer
• The solicitor (appointed by you or by the lender) goes through the legal process
• The remortgage completes by the solicitor switching you over to the new deal

Mortgage prisoners can expect the same timeline as anyone else switching their mortgage onto a new deal with a new lender. It usually takes 4-8 weeks, but dependent on individual circumstances and based on how busy the lender, the valuers and the solicitors are, it might take a shorter or longer period.

Building insurance

With every mortgage, building insurance is mandatory to ensure that in case the structure is damaged (e.g. by fire, flood or movement), the insurance will cover at least the mortgage amount.

Nothing else is compulsory, but of course, it makes sense to cover costly unexpected events.

Contents insurance

Contents insurance can pay for replacing your personal belongings if someone burgles your home, there is fire, you accidentally drop your new flat screen TV…and the list goes on.

Landlord insurance

If you’re planning to rent out your property then you should consider getting landlord insurance. Landlord insurance protects you as a landlord from risks associated with your rental property. It usually includes buildings and contents insurance, but can also include rental-property specific covers such as protection against loss of rent, and tenant default. It can also cover legal fees and compensation for damage or injury to the tenant due to the property.

Life insurance

Life insurance is a one-off payment if you were to die during the mortgage term, so the insurance can settle your mortgage. This would allow your family to stay in the property without worrying about mortgage payments at an already stressful time.

Critical illness cover

Critical illness cover would give you a lump-sum if you had a serious illness like cancer, heart attack or stroke as well as dozens of other conditions. This payment may or may not settle the mortgage, but it can help pay for treatment, let you take time off work while recovering or alter your home, if necessary.

Income protection

Income protection is designed to give you a monthly income for some time in case you can’t work due to an accident or a long term illness. This covers mental health issues as well.

Of course, all the insurances come with terms and conditions, optional features and your medical history can influence your options.

To find the right insurance cover that fits within your budget, speak to our team today. We can compare the whole market, find the most suitable cover and apply on your behalf free of charge.