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What should I do if I’m a mortgage prisoner?

Which? Common Money Problems Solved - July 2015

Row of UK houses

In this monthly series, we share the answers provided by our experts on the Which? Money Helpline to questions members have been asking about their finances.

We have taken a number of calls over the past few months from people who have come to the end of their mortgage deal and find themselves ‘mortgage prisoners’.

This is because they can’t get past new, much tighter lending criteria to move mortgages – even though more affordable options are available.  

What is a mortgage prisoner?

Lenders now take a much tougher stance when they assess your finances and decide whether or not you can afford to repay a mortgage as a result of the Mortgage Market Review, which was designed to stop people getting loans they would struggle to repay. 

We’ve heard from homeowners who are stuck on their current lender’s standard variable rate (SVR) – the rate you revert to when your fixed-rate, tracker, or discount mortgage comes to end – because they don’t meet their lender’s new affordability criteria. 

Lenders are telling borrowers they ‘can’t afford’ to remortgage or switch to a cheaper rate, even though their repayments would be smaller.

Mortgage brokers report that sometimes it doesn’t matter if a customer has been with a lender for years, built up a decent amount of equity and never missed a payment. It means there could be no change in your financial position but if you no longer meet your lender’s affordability tests, it may not offer you the most competitive deals.

The good news is that lenders take different approaches to affordability so if your existing lender says no, another might be more accommodating. 

Shop around, ideally via an impartial broker such as Which? Mortgage Advisers who can look at the market for you and guide you towards a lender willing to offer you a better deal. 

Have your mortgage terms changed?

We’ve also heard from members who have found that their mortgage terms have changed. 

For example, lenders are reviewing and changing portability terms so that loans are no longer transferable to a new property. This is a particularly important feature for borrowers on a long-term fix who want the flexibility to move to a new property without being hit by early repayment charges.

Other borrowers have been told that their ‘mortgage reserve facility’ has been reduced or withdrawn entirely. This facility works as a secured overdraft on a mortgage current account allowing you to borrow money against the equity in your home, up to a pre-arranged limit.

In some cases, access to a mortgage reserve plays an important role in retirement planning so if some lenders are making significant reductions, it could have a big impact on your future.

First, check the terms of your mortgage to see if they allow the lender to make these changes, and submit a complaint if you think the lender is in breach of the contract.

Find out more: Call the Which? Money Helpline – your financial queries answered

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Which Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Your home may be repossessed if you do not keep up repayments on your mortgage.

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