Mortgage prisoners - what are your options?
help for mortgage prisoners is out there...
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I'm trapped by my mortgage - is there a way out?
We disclose over 10 forms of mortgage prisoner help!
Life as mortgage prisoners isn’t the most pleasant - neither is it cheap. As a mortgage prisoner, you can be expected to pay in excess of double the interest rate of the average homeowner.
Why?
Because of a flaw in the mortgage application process. A flaw that’s been burning a hole in prisoner’s pockets for the good part of decade. Just one of the reasons why organisations across the UK are campaigning to get mortgage prisoners compensation and help them escape high interest mortgage deals.
Speaking of which, escaping mortgage imprisonment isn’t actually as difficult as it sounds.
Keep reading and we’ll reveal how you can be freed in just 7 days…
What is a mortgage prisoner?
Mortgage prisoners are individuals who are unable to switch their current mortgage deal, despite the availability of better options, due to being trapped in their existing mortgage contract.
The Financial Conduct Authority (FCA) has highlighted the issue of mortgage prisoners in the UK property market.
This can occur when homeowners are unable to meet the stricter lending criteria applied to new mortgage applications, or when the value of their home has fallen below the amount they owe on their mortgage, resulting in negative equity.
As a result, mortgage prisoners may be paying higher interest rates than they would be able to obtain if they could switch to a new mortgage, which can cause financial hardship.
It is important for property solicitors to be aware of the FCA guidelines surrounding mortgage prisoners and to inform clients who may be impacted by this issue.
It is crucial that homeowners who are currently mortgage prisoners seek advice from qualified professionals, such as mortgage brokers, financial advisors or property solicitors, who can guide them through the process of finding alternative solutions, such as re-mortgaging, seeking a product transfer or seeking a further advance, where possible.
What does a mortgage prisoner mean?
We’re pretty sure you’ll know this so we’ll keep it short.
Being a mortgage prisoner means that you’re trapped in your current mortgage deal, unable to redoing house payments away from your current lender to take advantage of a cheaper rate.
The most common reason for mortgage imprisonment are the changes to eligibility criteria that were introduced by banks in the aftermath of the 2008 financial crash.
Changes that tightened the existing criteria without considering its effects on current customers. Particularly those who’d just taken out a low equity mortgage or whose lender was no longer active.
Exactly why a large proportion of help for mortgage prisoners is directed at ex Northern Rock and Bradford & Bingley customers, who’ve been unable to redoing house payments away from their current deal.
Although, other factors can cause mortgage imprisonment too. For instance, a drop in household income or a decline in your credit score can hamper your ability to redoing house payments. For those with a small amount of equity in their home, falling into negative equity is also a cause.
Mortgage prisoner litigation
The Mortgage Prisoners Litigation refers to a legal action taken by a group of homeowners in the United Kingdom who are known as "mortgage prisoners".
Mortgage prisoners are individuals who are trapped in their current mortgage deal and are unable to switch to a better one, often because of changes in lending criteria and regulations.
Many mortgage prisoners are people who took out mortgages before the 2008 financial crisis, when lending criteria were more relaxed, and are now unable to remortgage because they no longer meet the stricter affordability checks imposed by lenders in the aftermath of the crisis.
The Mortgage Prisoners Litigation seeks to challenge the lending practices of a number of mortgage lenders who are accused of failing to provide these homeowners with fair and affordable mortgage deals.
The litigation aims to obtain compensation for mortgage prisoners who have been unfairly treated, and to force lenders to offer more affordable mortgage deals to these customers.
The litigation is being pursued by the UK's financial regulator, the Financial Conduct Authority (FCA), on behalf of mortgage prisoners.
The FCA has said that it believes there are around 250,000 mortgage prisoners in the UK, and it has been working to find ways to help these homeowners switch to more affordable mortgages.
What happens to a mortgage if banks collapse?
When a bank collapses, your house mortgage will not be revoked.
You still keep making your monthly payments as usual and if you savings are with your lender they will NOT be used offset any mortgage debt. You’ll still be entitled to compensation on your savings as usual.
Instead your debt will be sold on to either another bank, building society or investment firm.
After which your payments will be simply be payable to them.
In the case of Northern Rock, its mortgage were first in the hands of the UK Asset Resolution (a state owned company), but were later sold off in 2015 to private equity firm in the US called Cerberus Capital Management.
Whereas those issued through Bradford & Bingley or mortgage Express are still held by UKAR.
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What is an inactive lender?
An inactive lender is a corporate term for a mortgage company that is no longer lending, but is authorised to do so.
While a lender who is inactive may still operate, because they don’t offer any mortgage products, borrowers who are with an inactive lender don’t have the option of an internal switch.
Just one of the strategies that would be of great help for mortgage prisoners.
What will stop me from getting a mortgage?
A lot of factors can stop you from getting a mortgage. Fall into one of these categories and it’s highly likely you could be deemed to be mortgage prisoners.
Here’s just a few of these factors for you to consider:
Mortgage prisoners because of a poor credit rating
Your credit score is one of the first things a lender will look at when assessing your mortgage application.
Even if you’ve previously had a mortgage for that amount or are just looking to do an internal switch, you can still be rejected because your credit score is no longer up to scratch.
If the effect on your credit score has been particularly bad then you may be declined mortgage finance altogether or become a mortgage prisoner.
Imprisoned by negative equity
Equity is the portion of your home that you own. Negative equity is when this portion falls below zero.
The most common instance of negative equity is when house prices fluctuate. When this happens, your investment in the property can reduce in value, just like property’s value itself.
Meanwhile the size of your mortgage loan does not, which means that theoretically you now have debt on top of any mortgage finance. A situation that can often leave you trapped in a high interest mortgage deal.
Losing your job & becoming a mortgage prisoner
A form of income sits at the heart of any mortgage application.
Lose that and you’ve got a good chance of becoming mortgage prisoners. Unless you have strong evidence that your income will be improving, then it can be very difficult to secure any form of mortgage finance.
This is why the self-employed often find it hard to get mortgage and are far more liable to becoming mortgage prisoners.
Mortgage prisoners because of age
Mortgages are lengthy loans, so someone’s age really does matter. If someone could take out a 30-year mortgage when they were 80, it’s likely it would never get repaid.
Therefore, age can often be another reason for why you become a mortgage prisoner.
redoing house payments in your later years can be tough. In order to reduce the risks associated with old age, a lender will require you to opt for a shorter term.
A move that can cause your monthly payments rise quite substantially. If age is barrier that’s keeping you imprisoned, then an interest only mortgage may be the way forward.
Victims of tighter affordability criteria
In response to the financial crisis, in 2014 lenders adjusted their affordability criteria to make it harder to qualify for a mortgage.
They made applications more stringent by judging applicants on their financial health opposed to just their household income.
However, when they did so, they neglected to consider its effects on those currently with a mortgage.
With the new criteria demanding homeowners to have more equity in their house, those who’d taken out high percentage mortgage in the early 2000s of 90%, maybe even 100%, found themselves mortgage prisoners due to a lack in equity.
Imprisoned to a mortgage due to the effects of the economic crisis, Covid or Brexit
How lenient lenders are with mortgage ultimately depends on the country’s economic situation, so as you can expect, the economic crisis, Brexit and Covid could have a significant impact on the success of mortgage applications.
As these seismic events spread uncertainty it’s likely that lenders will adapt, being more frugal with their mortgage.
What’s more, unstable times mean that it’s more likely that potential borrowers suffer financial setbacks or a loss of equity in their home.
All of which increases the chance of becoming mortgage prisoners.
The FCA offer help for mortgage prisoners
As of 2021, the Finical Conduct Authority (FCA) has published a revised set of rules around affordability checks, to offer help for mortgage prisoners.
FCA’s changes allow lenders to adapt their affordability assessments to enable mortgage prisoners to migrate onto more competitive deals, providing the applicant has no mortgage arrears.
What it means is that applicants who are trapped by their mortgage, will be judged on their payment history rather than the new stringent affordability checks.
However, the new rules have been implemented by lenders in different ways. For some it’s been a case of creating new products specifically for mortgage prisoners.
Whereas for others (usually larger lenders) allowances have been made in their current application process to give a mortgage prisoner help.
For instance, a mortgage prisoner will only be subject to stress test of no more than 1%, where usually it’s be 3%. For those who’re considered too old for a mortgage, new interest only mortgage are available.
Can you claim for being a mortgage prisoner?
If you believe that you are a mortgage prisoner, you may be able to make a claim as part of the Mortgage Prisoners Litigation, which is being pursued by the UK's financial regulator, the Financial Conduct Authority (FCA), on behalf of mortgage prisoners.
Alternatively, you may be able to seek assistance from the FCA's Mortgage Prisons Review, which was established to help mortgage prisoners find more affordable mortgage deals.
The review has resulted in some lenders offering new mortgage deals to eligible mortgage prisoners.
It's important to note that not all mortgage prisoners will be eligible for compensation or assistance, and the specifics of your situation will determine whether you can make a claim.
It's best to seek advice from a legal or financial professional who can advise you on your individual circumstances and options.
Mortgage prisoners compensation
At the moment, there is no specific compensation scheme in place for mortgage prisoners in the UK.
However, as mentioned earlier, the Financial Conduct Authority (FCA) is pursuing legal action against a number of mortgage lenders on behalf of mortgage prisoners, seeking compensation for those who have been unfairly treated.
If you believe that you are a mortgage prisoner and have been unfairly treated by your mortgage lender, you may be able to make a claim as part of the FCA's litigation.
The specifics of your situation will determine whether you are eligible to make a claim, and it's best to seek advice from a legal or financial professional who can help you assess your options.
Is there still help for mortgage prisoners who don’t meet the criteria?
Yes. In the case you don’t meet the criteria, you can always apply for various mortgage prisoner compensation schemes. If you’ve been prisoners for a long time, then this may be a valid route to take.
The law firms involved with these sort of cases, are reported to have handled legal proceedings for mortgage prisoners who’ve been paying up to 5% interest for in excess of a decade!
You can also find help for mortgage prisoners by reaching out to the UK mortgage Prisoner Support Service.
A not-for-profit organisation designed to offer help for mortgage prisoners and who along with Money Saving Expert, were the driving force pushing for this new legislation.
How can I get out of a high interest mortgage?
It can be painful to be trapped in a high interest mortgage, especially when you’re conscious that a redoing house payments would save you a large chunk of money each month.
Well thankfully, if you are a mortgage prisoner on the hunt for help, we’ve got you covered.
Here’s over 10 strategies that could help you ace your stress test and free yourself from mortgage imprisonment…
What happens if you can't pay your mortgage UK?
If you can't pay your mortgage in the UK, there are a number of potential consequences that you should be aware of.
Here are some of the main things that could happen:
Arrears:
If you miss a mortgage payment, you will be in arrears. If you continue to miss payments, the amount of arrears will increase, and you could face additional charges and fees.
Contact from your lender:
Your lender will likely contact you if you miss a payment to discuss your situation and explore options for repayment. They may also send you letters or emails reminding you of the missed payment.
Credit rating:
If you miss mortgage payments, your credit rating will be negatively impacted, which could make it more difficult to obtain credit in the future.
Repossession:
If you continue to miss payments, your lender may eventually take legal action to repossess your property. Repossession is a serious consequence that can have long-lasting impacts on your financial situation and credit rating.
If you find yourself struggling to make your mortgage payments, it's important to contact your lender as soon as possible to discuss your situation and explore options for repayment.
There are also a number of resources available to help you if you are in financial difficulty, such as debt advice charities and government support schemes.
How many missed mortgage payments before repossession UK
In the UK, the number of missed mortgage payments before repossession can vary depending on the specific circumstances of each case.
Typically, a lender will take legal action to repossess a property if the borrower has missed three or more consecutive mortgage payments.
However, lenders are required to follow certain procedures before they can begin repossession proceedings, and there are steps that borrowers can take to avoid repossession.
If you are struggling to make your mortgage payments, it's important to contact your lender as soon as possible to discuss your situation and explore options for repayment.
Lenders are often willing to work with borrowers to find a repayment plan that is affordable and manageable, and may be able to offer forbearance or other forms of assistance to help you get back on track with your payments.
Our checklist for mortgage prisoners
Pay bills with direct debit
Before taking any serious action, the first step any mortgage prisoners should take is to eradicate the chance of their credit file being harmed, not matter its condition.
The easiest way to do so is make all your payments via a direct debit. That way no payments are missed and in the eyes of a lender, you are reliable on a regular basis.
Remain employed for a good length of time
Your income largely determines how much a lender will allow you to borrow, so it’s important that they can see it’s reliable.
Demonstrate that you’re in a stable job by applying for a new mortgage after two years or more in your position and you’ll stand a far better chance of being accepted.
A long term strategy for those who’ve just started a new position, but nevertheless a factor you should bear in mind.
Reduce any unsecured borrowing
As mortgage prisoners you should be actively trying to reduce your liabilities, as having too many can give a lender cold feet.
Offsetting any outstanding debt or reducing your expenses, is a full proof way to increase your financial health and get on your lender’s good side.
Ultimately the key to finding help as a mortgage prisoner.
Check file for errors
With computers nowadays, it’s easy to monitor your credit file than ever before, so take advantage of it!
If you check your score and looks suspiciously low, reach out to either your lender or the credit agency to see if you can get it rectified.
The last thing you need is to be prevented from remortgaing because of someone else’s petty mistake.
Watch out for joint accounts
While joint accounts can be useful, if you or your partner doesn’t have an A* credit score, you’d be wise to revert to an individual account for the time you’re mortgage prisoners.
Fail to do so and lenders are likely to view you as a less reliable applicant, which may lead to them declining your application and you been no closer to freedom.
Strategic spending
Spending isn’t always bad. Lenders want to see reliability and in order to show them that you have to spend, regularly.
Strategic spending is where you take out a credit card and spend no more than 25% of the available balance each month. You then pay this off IN FULL via direct debit.
Repeat this for a couple of years and you may instil the trust in your lender that’s needed to get you help as a mortgage prisoner.
Speak to your lender
Although lenders are making money off your mortgage, that doesn’t mean they’re your enemy. In fact, they’ll almost always be willing to help make payment in any way you can.
Otherwise the profitability of your loan slumps.
So, if by preventing you from entering arrears and defaulting means transferring you to another mortgage product, it’s likely they’ll offer you a helping hand.
Reach out to a mortgage adviser
For mortgage prisoners, speaking with a mortgage adviser before they apply is a MUST.
After all, mortgage advisers are in close contact with lenders and know exactly what they’re after - golden information!
Plus, they’ll usually advise you on your situation for free and are a reliable source too.
A broker only gets paid if you take out a mortgage, so they’re going to honest and up front with you as to whether you’re likely to be accepted.
Opt for a negative equity redoing house payments
Entering negative equity isn’t a bottomless pit – you can escape! Although lenders don’t advertise it for obvious reasons, a select few will offer negative equity redoing house payments.
Whether you’d be eligible for one of these would depend on their sympathy for you and your current situation.
Look into low equity mortgage
In the case you do have equity, just not enough to redoing house payments, then a lender may be willing to offer you a low equity redoing house payments.
This would typically be anything above 90% of the market value. In fact, being mortgage prisoners may actually work in your favour.
If you’ve kept up to your mortgage for X number of years, to a lender you present a high profit opportunity with relatively low risk.
Don’t miss guarantor mortgage
Providing you know of a reliable relative or close friend, guarantor mortgage can be a surprising form of help for mortgage prisoners.
Call them the steeping stone in-between a bad deal and a good one. redoing house payments using a guarantor, and a couple of years down the line you could be eligible to switch back onto a standard repayment mortgage.
A bit of a long way round, but it’s certainly a possibility.
Add value to your house
As much as your mortgage is what’s holding you hostage, adding value to your house could actually be your way out, especially if at the moment you’re sat in negative or low equity.
Do so correctly and you could be able to claw a portion of this equity back, to reduce the amount you need to borrow.
However, the extent to which this strategy would be viable, depends on the size of your savings and the scope to add value to your property.
The elephant in the room
Okay, so the elephant in the room – that’s your property.
It’s the reason you applied for your mortgage in the first place and also the reason you’re reading this article, hunting for help for mortgage prisoners.
So, only logic would suggest that selling your property to pay off the loan could be the way to go. Use your remaining equity for a down payment on your next home and you could have escaped your bad mortgage quicker than you think.
Only thing is, to get this tied up within a week, you’d need a FAST house sale through a cash buyer…
As one of the UK’s leading national homebuyers with over 50 years’ experience in buying property, we can help you do just that.
Within the course of just 7-days, we’ll pay you CASH for your home to help you cut the ties between you and your high interest mortgage.
No hassle – no fuss – no hidden costs.
Sell your house to us and we’ll cover your legal fees, the cost of your surveys and even help you negotiate on an onward purchase if need be.
Can’t say fairer than that!
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