If you cannot switch to a more affordable mortgage, despite being up to date with your payments, new rules from the Financial Conduct Authority (FCA) mean lenders have more flexibility to help you switch mortgage. Here you will find out why you were struggling to remortgage, what the changes mean for you and a useful tool which will give an indication if you meet the eligibility requirements.
Who is a mortgage prisoner?
If you took out a mortgage to buy your home before 2014 and are now finding it hard to switch to a better deal, even if you’re up to date with your payments, this might be because of new affordability rules introduced by the FCA.
Affordability tests or assessments look at your income and expenses to determine if you can afford the mortgage repayments. Since 2014, these have been made much stricter, which means while you might have passed the affordability test when you first got the mortgage, you might not now.
In October 2019, the Financial Conduct Authority (FCA), introduced changes which might help you switch to a more affordable mortgage deal. These new rules are based on your mortgage payment history, rather than the affordability assessment.
How will the changes help me?
Lenders can now use a modified affordability assessment, which means they can choose not to ask for evidence of your income and expenses or apply a stress test. A stress test requires a lender to check that they can continue to make payments should the interest rate on your mortgage rise.
Mortgage lenders can carry out a modified affordability assessment if you:
- have a residential mortgage on your home
- are up to date with your mortgage payments and have been for the last 12 months
- do not want to borrow more - other than to pay for any fees associated with the mortgage
- are not looking to move home.
Lenders can use these rules to offer you a new mortgage as long as it will be more affordable for you than your current deal.
Lenders do not have to use the new modified affordability assessment. Some will choose to help you by making other changes to the way they assess affordability. The offer of any new mortgage is a decision for lenders, so what is on offer will vary between firms and not all mortgage prisoners will be eligible for all mortgages.
Please note, the new affordability assessment rules don’t apply to buy-to-let mortgages.
What other switching options are available?
If you’re able to demonstrate the mortgage (including repayment plans) is affordable there are a number of other ways a lender could help. For example, a lender could:
- simplify how they check you can afford your mortgage if interest rates go up
- consider other options for older borrowers, for example retirement interest-only mortgages or equity release
- consider total or partial conversion to repayment from an interest-only mortgage
- look at each application on an individual basis instead of using an automated approach.
Am I eligible under the new rules?
Lenders will use a variety of different criteria to determine whether they will accept your mortgage application. These vary from lender to lender, but might include:
- Minimum of 5 years remaining on the mortgage
- Remaining mortgage of at least £50,000
- Minimum property value of £60,000
- A loan to value (the amount you want to borrow compared to the value of the property) of no more than 85%
- The mortgage being on the borrower’s existing home (not available for home movers or for buy-to-let)
- No changes to the borrowers (no borrows added or taken off the mortgage)
- No missed mortgage payments in the last 12 months. This does not include payment deferrals agreed with lender and taken due to the coronavirus outbreak.
- Your mortgage is not a buy-to-let mortgage.
If you’re on an interest-only mortgage
If you’re on an interest-only mortgage, you will need to have a repayment plan to repay the outstanding mortgage at the end of its term and be able to provide proof of your ability to repay.
If you don’t have this, you should speak to your existing lender to discuss your options. This might include switching part of your mortgage to repayment (capital and interest), which will increase your monthly payments but leave you in a better position to repay your mortgage later.
If you’re worried you won’t be able to repay the mortgage, you should act now to understand your options and what you can do to improve your position. Taking action early will put you in the best possible position at the end of your mortgage, or improve your options to get a new better mortgage deal in the future.
How do I get help and what do I do next?
To get an initial indication of whether or not you might be accepted, try out our mortgage prisoner eligibility tool.
If you want to discuss your options with a regulated mortgage adviser, you can find here a list of firms who will have an adviser able to discuss your options in more detail.
Find out more about how to find and choose and mortgage adviser.
Lenders are expected to begin offering new switching options later this year.
Further information will be published once it becomes available.
If you’re struggling to pay your mortgage or are in arrears
If you’re finding it difficult to pay your mortgage, or are already behind on payments, it’s important to take action as soon as possible.
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