They were, until quite recently, the forgotten many - the "mortgage prisoners'. The Financial Conduct Authority estimates that this situation affects almost a quarter of a million people in the UK with a mortgage who are paying high standard variable rates to their lender and unable to remortgage to a new lender.
So what happened that led to so many people being stuck paying higher rates to their existing lender and not being able to move? In the majority of cases, these are lenders who closed their doors to new business and now exist purely to service the existing borrowers. Sometimes called zombie banks, firms like Northern Rock spring to mind where all they offer the customers is their standard variable rate. The problem is that many of these customers can't move to another lender because of the way lenders now assess affordability.
Guidance issued to lenders in 2014 means lenders now perform far more stringent checks on a customer and in particular affordability of the mortgage repayments. Before 2014, you will have been able to borrow far more than you can today. This means that when a mortgage prisoner is shopping around for a better deal, they no longer meet the criteria and the far stricter affordability assessments that are now applied and have no choice but to stay put on standard variable rates.
You may also be considered a mortgage prisoner if you have an "Interest-Only Mortgage" without a specific repayment vehicle in place. Again, pre-2014, some lenders allowed this, whereas today, lenders will not allow an "Interest-Only Mortgage" unless you have a designated repayment method. As a result, many "Interest-Only Mortgage" holders are imprisoned on standard variable rates.
The Financial Conduct Authority recently published a paper urging lenders to review their stances on these types of borrower and offer solutions to help these zombie bank mortgage prisoners to move away and take advantage of better rates. A major high street bank has done precisely that and is offering a potential lifeline to many borrowers, and at Greenshoots, we applaud this initiative and hope those other lenders will follow suit.
We've helped several clients in this situation and understand your needs. If we establish that you're a mortgage prisoner, we take you through all of your options. Whether that is using the FCA mortgage prisoner remortgage option, reviewing your repayment method, equity release or retirement interest-only mortgages; our advice is tailored for you.
Contact us today to discuss your options on 01506 274006 or firstname.lastname@example.org