Mortgage Prisoners: next steps on the journey to a new mortgage

This week mortgage prisoners who are not in arrears will begin to receive letters from their existing lenders letting them know that they may qualify for a better rate mortgage.

As a result of changes introduced by the Financial Conduct Authority (FCA), which might help those customers who are up to date with their payments switch to a more affordable mortgage deal, the mortgage industry has come together to make the journey to a better rate as smooth as possible.

The new rules are based on the borrower’s mortgage payment history, rather than the affordability assessment. This means lenders can choose not to ask for evidence of the borrower’s income and expenses or apply a stress test. Small and medium lenders have developed new products aimed specifically at mortgage prisoners. Larger lenders are introducing flexibility to their eligibility criteria to meet the specific needs of these borrowers, for example lifting loan to income ratio caps. Many firms have reduced their stress test from three per cent to one per cent, which may be enough to enable some customers to move to a lower-rate mortgage with an active lender. Specialist later life lenders are ready to consider offering retirement interest-only mortgages where this would be a suitable solution for older borrowers. For some indebted borrowers, debt-consolidation mortgages may be suitable.

With such a variety of options, it’s important that borrowers receive independent mortgage advice, rather than approaching a lender directly, and brokers are ready to help borrowers navigate the way to the most suitable mortgage for them. Lenders will then speak with the brokers to let them know who they will lend to and what products are available, dependent on that individual firm’s risk appetite and lending policy. The Money Advice Service has a list of brokers that are available to help mortgage prisoners.

It’s important to recognise that not all mortgage prisoners will be able to get a new mortgage, especially if they currently have an interest-only mortgage with no plan to repay the capital or have let out their property. The letters that the mortgage prisoners receive will contain a link to the Money Advice Service where borrowers can obtain independent information. To receive an initial indication of whether or not they might be accepted by a lender, borrowers can try out the mortgage prisoner eligibility tool.This tool also offers advice on how borrowers can improve the likelihood of moving to a new mortgage.

 

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Main article photo courtesy of Pixabay