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4 Jul 2019

New remortgaging deals launched to free 'mortgage prisoners'

More help for mortgage prisoners

The Ipswich Building Society has launched six new remortgaging products specifically aimed at freeing 'mortgage prisoners' from their current deals.

The lender has said that it won't 'stress test' applicants for these new mortgages, making it easier for those trapped in expensive deals to pass affordability checks.

This move, along with upcoming sector-wide regulation changes, could help mortgage prisoners save thousands of pounds a year.

We take a look at Ipswich Building Society's new remortgaging deals to see what kind of difference they could make.

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What is a mortgage prisoner?

Thousands of borrowers across the country became mortgage prisoners when the Financial Conduct Authority (FCA) introduced strict affordability checks in 2014 to clamp down on irresponsible lending.

Although they were designed with good intentions, the changes meant that many people who were granted mortgages before 2014 became trapped in their current deals, unable to remortgage because they can't pass the new, stricter tests - even if they've made all their payments on time and are not asking to borrow additional funds.

The longer borrowers stay with the same mortgage product, the more likely they are to revert to their lender's standard variable rate (SVR), which will nearly always be more expensive than a new introductory rate.

Last year, Which? research into remortgaging found that homeowners on SVRs could save almost £4,000 a year if they switched to an equivalent deal.

Find out more:remortgaging - how to save thousands on your mortgage

How do Ipswich Building Society's new products work?

The Ipswich's new product range aims to help mortgage prisoners remortgage by bypassing the affordability 'stress test' which was introduced in 2014.

Stress tests were put in place as a risk-minimising measure. They check whether a borrower would still be able to afford their mortgage repayments if their interest rate was to rise significantly.

With these six new products, the Ipswich Building Society will simply check that customers can make repayments at the introductory rate and SVR advertised, rather than at a higher, stressed rate.

Affordability checks will still be carried out, however. You'll need a good credit score, at least two years' history with your existing lender, and you won't be able to increase the amount you're borrowing.

You'll also need to borrow at 4.5 times your income or less, and you can't make big changes such as switching from interest-only to repayment, extending the mortgage term, or putting the mortgage in someone else's name.

Find out more:interest rate calculator - find out how much a rate rise would impact your payments

The deals in detail

Ipswich's range has products available for residential, later life, and shared ownership borrowers. There are two products for each of these groups.

Residential borrowers

These mortgages are open to customers over the age of 18, borrowing at up to 80% loan-to-value (LTV).

ProductIntroductory rateAPRC
2-year discount rateSociety's SVR (currently 5.74%) minus 3.19%5.5%
2-year fixed rate2.8%5.3%

Later-life borrowers

These products are for applicants over 50, borrowing at up to 75% LTV. The discount rate product has unlimited fee-free overpayments and no early repayment charge.

ProductIntroductory rateAPRC
2-year discount rateSociety's SVR minus 3.24%5.4%
2-year fixed rate2.75%5.3%

Shared ownership borrowers

Applicants remortgaging a shared ownership property can choose from these two products, available to cover up to 90% of the share.

ProductIntroductory rateAPRC
2-year fixed rate3.25%5.4%
Exclusive 2-year fixed rate3.15%5.4%

Could these deals set mortgage prisoners free?

The removal of stress tests may well help some mortgage prisoners.

At the moment, a borrower on an SVR of 5% who has made every one of their payments might be told that they 'can't afford' to remortgage to an equivalent deal at 3% - which, obviously, is even more affordable - because of a stress test that adds 5-6% to that rate.

There are, however, other reasons people are trapped - and this range of mortgages will not help everyone.

If you were given an interest-only mortgage before 2014, you may not have been required to have a credible repayment plan in place. If you don't have a repayment plan, your best option is to remortgage to a repayment mortgage. But for all the usual reasons, this can be tough for mortgage prisoners.

Since Ipswich's new range doesn't let you switch from interest-only to repayment, it won't lead to freedom for everyone.

What else is being done to help mortgage prisoners?

Ipswich is using flexibility in the current regulations to bypass stress tests, but the FCA has also announced proposals to help mortgage prisoners by making the rules less strict.

While the final changes will not be announced until the end of the year, the gist is that lenders will be allowed to use their own judgment to give borrowers modified affordability assessments if needed.

In June, the All-Party Parliamentary Group on Mortgage Prisoners launched an inquiry to look into the issue further, with the aim of making sure mortgage prisoners are treated fairly.

The group secured a House of Commons debate on mortgage prisoners, which saw many MPs agreeing that work needs to be done to help these vulnerable customers.