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A house changed up with a padlock, indicating a mortgage prisoner.

Who is a mortgage prisoner?

If you took out a mortgage to buy your home before 2014 and are now finding it hard to switch to a better deal, even if you’re up to date with your payments, this might be because of new affordability rules introduced by the FCA.

Affordability tests or assessments look at your income and expenses to determine if you can afford the mortgage repayments. Since 2014, these have been made much stricter, which means while you might have passed the affordability test when you first got the mortgage, you might not now.

In October 2019, the Financial Conduct Authority (FCA), introduced changes to the rules which might help you switch to a more affordable mortgage deal. These new rules are based on your mortgage payment history, rather than the affordability assessment.

Many mortgage firms have been required to write to customers who are unable to switch and may benefit from these changes. If you have received a letter, it does not mean you are automatically eligible for these changes.

A house changed up with a padlock, indicating a mortgage prisoner.
Confused mortgage prisoner couple

Am I eligible under the new rules?

Lenders will use a variety of different criteria to decide whether they will accept your mortgage application. These vary from lender to lender, but might include:

  • Minimum of 5 years remaining on the mortgage
  • Remaining mortgage of at least £50,000
  • Minimum property value of £60,000
  • A loan to value (the amount you want to borrow compared to the value of your home) of no more than 85%
  • The mortgage being on your existing home (so not available for home movers or if you are currently letting out your home)
  • No changes to the borrowers (no borrowers added or taken off the mortgage)
  • No missed mortgage payments in the last 12 months. This does not include payment deferrals agreed with your lender and taken due to the coronavirus outbreak.
  • Your mortgage is not a buy-to-let mortgage.
  • A clear repayment plan if you are on, and want to remain on, an interest-only mortgage.
  • Some lenders will require a copy of the letter your mortgage firm has recently sent you explaining that borrowers who are unable to switch may be able to benefit from the recent rule changes.
A home sat on repayment plan paperwork

Interest-only mortgages

If you are on an interest-only mortgage, new lenders will expect you to have a repayment plan to repay the outstanding mortgage at the end of its term and be able to provide proof of your ability to repay.

If you do not have this, it is very unlikely that you will be able to benefit from new switching options. New lenders will not take on new interest-only mortgages without a repayment plan. If this is the case, you should speak to your existing lender to discuss your options.

Some lenders may be able to offer options that include switching part of your mortgage to repayment (capital and interest), which will increase your monthly payments but leave you in a better position to repay your mortgage later or by arranging to make overpayments to reduce the overall debt which could make it easier to re-mortgage in the future.

If you are worried you won’t be able to repay the mortgage, and/or you’re at or near the end of your mortgage term, you should act now to understand your options and what you can do to improve your position. Taking action early will put you in the best possible position at the end of your mortgage or improve your options to get a new better mortgage deal in the future.

Buy-to-Let mortgages

If you have a Buy-to-Let mortgage, you will not be eligible under these rules.

If you currently have a residential mortgage with ‘consent-to-let’, and plan to continue letting out your property, you will also not be eligible for these changes.

A home sat on repayment plan paperwork
Do I qualify for help as a mortgage prisoner?

What other switching options are available?

If you’re able to demonstrate the mortgage (including repayment plans) is affordable there are a number of other ways a lender might be able to help. For example, a lender could:

  • simplify how they check you can afford your mortgage if interest rates go up
  • consider other options for older borrowers, for example retirement interest-only mortgages or equity release
  • consider total or partial conversion to repayment from an interest-only mortgage
  • look at each application on an individual basis instead of using an automated approach.
A couple struggling to pay their mortgage

If you are struggling to pay your mortgage or are in arrears

If you are finding it difficult to pay your mortgage, or are already behind on payments, it’s important to take action as soon as possible.

If you haven’t already, make sure you contact your lender to talk about your options.

You can also speak to one of the advisors at the Mortgage Advice Service on 0800 138 7777, or WhatsApp +44 7701 342744 for more help and guidance.

A couple struggling to pay their mortgage

Contact us for advice in plain & simple English. Or for more information, download the guide now.