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 monthly mortgage payments today and in the future. It will also ‘stress test’ your finances to make sure your payments would still be affordable if there was a change in circumstances, such as interest rate rises.
The affordability ‘stress test’ considers whether you will be able to afford the monthly payments over a minimum period of five years from the expected start date of the mortgage. It is not based on whether you can afford the payments at the fixed rate you may originally start on. The ‘stress test’ considers the impact of any likely future interest rate increases on affordability and must test at a minimum of 1% if the initial fixed rate is less than 5 years, even if interest rates are predicted to come down.
For example, if the initial rate was fixed for 2 years at 3%, and the variable rate was 5.25%, your affordability would be tested at a minimum of 6.25%.
For an average £200,000 mortgage over 25 years, the test will look at whether you could afford monthly payments of approximately £1,320 instead of the £948.42 you may be required to pay in the initial 2-year fixed rate period.
Yes, the FCA expects lenders to adhere to rules on responsible lending, which includes considering the effect of future interest rate rises over a minimum period of 5 years. The rules stipulate that a lender must assume that interest rates will rise by a minimum of 1% for mortgages that are fixed for less than 5 years, even if the market predicts rates will fall.
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.
