Mortgage prisoner has been around in the mortgage broker’s vernacular for a few years now. However recently the Financial Conduct Authority (FCA) has decided to launch a consultation, perhaps brought on by the Covid-19 lockdown issues that have plagued the economy.
I think the first time I remember the phrase was after the credit crunch recession of 2008 onwards. Before then mortgages were not regulated and there were an awful lot of self certified mortgages. Also many of the high street lenders were lending up to six times earnings. This led to many people having mortgages that, while they could afford the payments, meant that once regulation came in and lending terms were stricter they did not meet the affordability requirements of the lenders.
Therefore your traditional model of switching your mortgage every couple of years went out of the window and you were then stuck on your existing lender’s standard variable rate.
The above is quite common but not the only way you end up a mortgage prisoner. If personal circumstances change, new job, started a business, divorce, separation, the list goes on then you could find yourself in a situation where you are stuck with a mortgage that is perhaps more expensive than is available to you should you have freedom of choice.
Over the last few years some lenders have started offering competitive deals for existing customers, bizarrely lenders traditionally only kept their best deals for new customers. This is a good thing if you find yourself unable to get a deal elsewhere as there are no underwriting requirements. Providing you don’t want to borrow any more money or change any of the terms of the mortgage and you have kept up your repayments then you will be eligible to switch.
There are still plenty of mortgage prisoners out there, I would imagine quite a lot of former Northern Rock customers stuck on uncompetitive rates. Good news for some is that Nat West now have an offering for mortgage prisoners who might not be able to get a deal elsewhere. Details are sketchy at the moment but customers will have access to any rate available and will be subject to a separate affordability calculator. In order to qualify you must have been written to by your existing lender to inform you that you are indeed a mortgage prisoner.
This is the press release from NatWest:
“Due to changes in affordability requirements following the 2008 financial crisis there are an estimated 140,000 borrowers who are unable to switch to a better deal; many are paying high interest rates with closed book or unregulated lenders. The FCA has identified these customers as ‘mortgage prisoners’.
To help these borrowers the FCA has updated affordability requirements to allow us to include a borrower’s track record of making mortgage payments as part of a proportionate affordability assessment.
At NatWest Intermediary Solutions we’re proud to be helping customers and communities succeed by working with FCA selected brokers, of which you are one, in order to support Mortgage Prisoners.
For clients identified as mortgage prisoners we will apply a more suitable and proportionate method to assess affordability. We will only be accepting applications for FCA identified mortgage prisoners, who have been contacted directly by their existing lender and have the appropriate letter confirming this. All standard NatWest remortgage products that your client qualifies for are available for mortgage prisoners. No additional borrowing will be available (except for finance product/arrangement fees, intermediary fees and consolidation of unsecured loans linked to the mortgage).”