Could you be a mortgage prisoner and just not realise?
Written on 29 April 2015
The phrase ‘mortgage prisoner’ has been used in the media for the last few years with increasing frequency. The situations under which borrowers could describe themselves as being ‘mortgage prisoners’ have multiplied as well, with many people not knowing what to do or where to turn. But what exactly is a ‘mortgage prisoner’ and what kind of situations warrant such a description? And is it a ‘life sentence’?
The definition is simple – someone who is ‘locked in’ to their current lender and circumstances. Many borrowers will not know they are facing problems until they approach their lender to discuss a change or new lending. It is at that point they are informed that their application has been declined and there is nothing the lender can, or is prepared to do. The situations that can lead to becoming a ‘mortgage prisoner’ are quite varied.
Here are some scenarios that are currently affecting thousands of borrowers throughout the country: -
- Mortgages currently arranged on an interest only basis where the borrowers are approaching retirement.
- Product transfers declined on affordability grounds or when some/all of the mortgage is currently on interest only.
- Further advance declines whilst still in an early repayment charge (penalty) period.
- ‘Bankrupt’ lender books offering no choices for product transfers/switches.
- Niche schemes being withdrawn (e.g. specific shared equity schemes tied to a lender that may have closed that book years later).
Lenders are also finding these situations difficult since they agreed the original mortgage on terms that were deemed permissible at the time. In the last few years lenders have been very conscious of media accusations of ‘irresponsible lending’ and have undergone a full Mortgage Market Review as a result, enacted in April 2014. It resulted in a set of guidelines for lenders to interpret and enforce in areas such as lending to customers’ retirement age that have created inconsistencies – leaving some customers at the mercy of their lender’s interpretation.
What a lender may not tell any of its own ‘mortgage prisoners’ is that there may be alternative lenders who are happy to approve what they cannot. This is because market restrictions do not allow them to advise on another lender’s products or criteria.
An independent mortgage adviser will be able to assess the situation, look at alternative lenders, and see if one lender’s ‘mortgage prisoner’ is actually another lender’s perfectly good ‘new borrower.’
If borrowers find themselves facing any of these situations, sound independent advice provides a starting point to finding a potential reprieve from their ‘life sentence’ with a tailored solution.
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.