An inquiry has recently been launched by the All-Part Parliamentary Group (APPG) on Mortgage Prisoners into people who have been stuck in their mortgages and are unable to apply for a remortgage. This inquiry has been the cause of a proposal made by the Financial Conduct Authority (FCA), focused on helping to fight this epidemic and free up the chains of these mortgage prisoners.
The FCA’s proposal has put forward new regulations, allowing mortgage lenders to be lenient when it comes to affordability checks for these mortgage prisoners, as the FCA’s post-financial crisis reboot of mortgage loan regulations have made it virtually impossible for mortgage prisoners to pass the updated affordability checks.
A mortgage prisoner is a homeowner who is unable to get out of their mortgage loan deal, and is therefore often trapped in a SVR (standard variable rate) mortgage deal. This SVR typically comes with much higher levels of interest rates than the other home loan deals out there, such as fixed rate and tracker mortgages.
Many people will be unaware that they are a mortgage prisoner, and have only realised this when being rejected for a remortgage deal. Homeowners have often found themselves trapped in this situation due to the nature of pre-2008 lending regulations.
The FCA tightened these regulations post-financial crisis in an attempt to minimise the risk of a further crash. However, this has meant that those got who have a mortgage that started before 2008 are now deemed ineligible for current mortgage deals. The FCA has estimated a shocking 150,000 of UK homeowners are mortgage prisoners.
This inquiry has only just been launched by the APPG, and therefore will not make any drastic impacts until sufficient developments in the investigation have been made. However, the aims for this inquiry are quite promising.
One of these aims is that the inquiry will be reviewing the FCA’s most recent proposals concerning this matter in order to contribute in this consultation. Another aim is that the APPG want to make sure that the proposals will be extensive enough to help this entire group of mortgage prisoners. The last of these three aims is to investigate whether the protections need to be further reinforced for the most vulnerable customers affected by this situation.
Although just starting, the response from the FCA’s recent proposal provide a promising look into the future eligibility for mortgage prisoners looking to escape their lender’s SVR deals and remortgage their homes.
In a similar scenario, there are thousands of mortgage prisoners as a result of a clause in their lease which states that their ground rent will double every certain number of years e.g 15 years. Whilst the cost may only be a few hundred pounds, the mainstream banks such as Barclays and Nationwide are unwilling to lend to any properties with leases where it says ‘doubles.’
Subsequently, many households are struggling to sell their homes and are relying on specialist finance companies who are willing to take a view. If those homeowners wish to move, many are using bridging finance as a way to purchase their new home, giving them an extension of 12 to 24 months to pay back their loan, hoping the property has been sold in this time.