Are you searching for a new and improved mortgage deal in the UK?
There are dozens of lenders throughout the country, but each has requirements for giving you a mortgage. Banks are becoming stricter about their lending requirements so it may be difficult to find a new deal.
You may have heard the phrase mortgage prisoner, but what exactly does it mean? Keep reading to find out everything you need to know on this subject.
What is a mortgage prisoner?
A mortgage prisoner is someone who is up to date with their current mortgage repayments. This person is unable to switch to a new provider.
This is because they do not meet strict lending requirements introduced after the 2008 financial crash.
According to figures released several years ago, there was 47,000 people in the UK that classified as a mortgage prisoner. In the modern day, this number will have decreased somewhat.
There are people dotted around the country who fall within this category.
As a second scenario, a mortgage prisoner can also be someone who is stuck with an inactive lender. If this company ‘went under’ in recent years then you may have no where else to switch to.
Mortgage prisoners pay interest through the standard variable rate. This is a cost they should not have to bear. For more information about mortgage prisoners and inactive lenders, keep reading.
Mortgage prisoners still exist in the modern day. Plenty of people at the time had mortgage repayments periods of 30, 35 or 40 years. They are thus still in the middle of repaying their mortgage in the present day.
Common reasons someone becomes a mortgage prisoner
Someone becomes a mortgage prisoner if they don’t meet the lending requirements. We have provided a few examples below.
Banks only offered shorter lending terms, which means that some of the longer lending terms from the past became obsolete. 100% LTV lending (in other words, to people who had no deposit) was closed.
Interest-only products were halted, creating a problem for people who were already on this type of mortgage.
Loan-to-income ratios also changed as lenders reduced risks. These lenders wanted to guarantee that the borrower could still afford the loan even if interest rates increased.
Someone can also become a mortgage prisoner if their lender is authorised for lending but is no longer doing so. These companies became stuck with no alternative products for borrowers to switch to.
We have explained more on this below.
What classifies as an inactive lender?
Inactive lenders are authorised for mortgage lending but are no longer lending. They collect mortgage debt but cannot offer new mortgages. They also can’t change the terms of existing mortgages.
This arose when mortgage firms went under after the 2008 financial crash. They sold their loan books on to other firms or private investors.
How can mortgage prisoners escape inactive lenders?
As more time is passing, some lenders are relaxing their criteria. This is often the case with the smaller banks that are trying to attract new customers in.
You should explore all the lenders on the market to see if there is a more ‘lenient’ bank that will make you an offer.
As a second option, you could switch to a new deal with a lender that is part of the same group as your initial lender. There is no easy way to find out whether your lender is part of a group. Speaking to a mortgage broker may give you some guidance.
If you do not meet modern lending standards, improve your financial situation so you are suitable. Try to build up a larger deposit or ask for a pay rise at work.
Circumstances that could boost your chances to switch to a better deal
You can increase your chances of a better deal through a few solutions.
Moving to a repayment deal from interest only is worthwhile. Without this switch, it is very unlikely that you will be able to enjoy new options.
You should also keep up to date with your payments, and try to avoid falling into negative equity. Many experts recommend that you are out of arrears for at least 12 months. You can then look at your options.
