Integra News What is a Mortgage Prisoner?

What is a Mortgage Prisoner?

Not the nicest term to use, do you agree?

But, it is pretty true. Having read through some interesting statistics on the FCA website, there are circa 195,000 mortgage borrowers in what is known as ‘closed business books’. This basically means that the mortgage lender is no longer active in the mortgage market and do not offer new deals to new or existing clients, therefore meaning you are trapped! Unfortunately for a lot of these clients, that means sitting on a higher than usual interest rate which is either controlled by the mortgage lender or the LIBOR (London Interbank Offered rate).

Based on the statistics shown on the FCA website;

  • 66,000 of the 195,000 may be able to switch, but the clients haven’t tried or simply given up hope.
  • 47,000 of the 195,000 who are mortgage prisoners are fully up to date with their payments but they can’t change because criteria has changed so much that they the mortgage they have is deemed, ‘no longer affordable’.

These are frighteningly high numbers, because these clients may simply not be aware of the fact they may possibly be able to do something and save a lot of money. I’m sure based on the current economic state, they would welcome a cost saving somewhere.

So, how does the ‘mortgage prisoner’ scheme work. Well first of all, let’s just make it clear that this type of mortgage solution is only offered by a small handful of mortgage lenders in the market at the time of writing. The mortgage companies need to apply to be apart of this scheme and need to evidence contingencies in place to protect them from any ‘bad business’.

Here is the short version of how the scheme works, based on our knowledge so far.

  • The regulator, The FCA (Financial Conduct Authority) oversee and regulate the mortgage market and they set our directives and regulations for mortgage lenders to stick to when providing mortgage lending to consumers. This means they have to work within a certain parameter ensure they don’t over lend per client and use stress testing to future proof lending. This is when you here of  lenders offering lending within a certain income multiple, for example 4x income or maybe even 5x income.
    • This type of format, typically wouldn’t work for the bulk of the 195,000 known mortgage prisoners!
  • The FCA created a new bespoke set of rules for these client types so that the mortgage market can offer alternative solutions to help save them money.
    • As far as we know it, most mortgage lenders will remove the income multiple cap (Within reason) and take a look at the clients circumstances. They will be paying particular attention to the following;
        • Will changing the clients current deal save them money based on the ‘mortgage prisoner rate’ offered by the new lender?
        • Can the client evidence a clean bill of credit history so that the new mortgage lender see the client as credit worthy?
        • Can the client evidence that they have been making payments every month for the last 12 months to maintain their current, higher rate of interest?
        • What are the clients future plans with income and affordability? Do they anticipate any negative changes to their circumstances?

This doesn’t detail all the granular details about the mortgage deal, in fact it scratches the surface, but what this blog will do is give the best part of over 100,000 mortgage prisoner clients hope that they could get themselves into a financially better situation.

You won’t see a lot of advertisement on this type of mortgage deal because it is high risk for the banks and building societies. Do you research, understand your risk and if in doubt speak to a mortgage adviser to discuss this type of mortgage solution. It may be that alternative methods of finance may be more suitable for your needs.

As always, please remember, a mortgage or secured loan is secured against your property. In the event that you do not keep up your repayments on your mortgage or secured loan your property may be repossessed.

For more information about this blog, please call 0117 251 0083 or email enquiries@integraf.co.uk

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