There are several reasons we may want to remortgage. It could be to get a better interest rate or better conditions, to borrow more or because our current deal is ending. It could even be to release equity from our home. However, for many people remortgaging may be a challenge,as they may find themselves trapped in their current mortgage deal.
What is a mortgage prisoner?
New mortgage lending rules in 2014 and 2016 changed the way lenders assess mortgage affordability. Whereas previously it was mainly based on multiples of what you earned, it’s now far more about checking your overall finances, and looking at what you’ve got coming in against what you spend. The mortgage application process also looks at the costs you might have in the future, and if you could cope if interest rates went up or of your own financial situation changed.
So some people who took out mortgages before now find themselves unable to meet lending criteria now, when their deal ends and they want to find a new deal. They then get forced on to the lender’s Standard Variable Rate (SVR), which is invariably significantly higher than fixed or tracker rate deals for the monthly payment. As a result, many people are stuck with their current mortgage deal, unable to afford to move to a new one, which leaves them paying more than they need to – or struggling to keep on top of their mortgage debt.
5 reasons why you might be a mortgage prisoner
- You can’t afford to move off the Standard Variable Rate. Your finance checks – outgoings versus your income – mean that you no longer pass the mortgage affordability tests, as mentioned above.
- Your personal circumstances may have changed. Since you last took out a mortgage you may have a larger family, which could mean single rather than double figure income, and more dependents.and
- You’re self-employed. Self-employed people make up around 14% of the UK workforce, but getting a mortgage can be difficult. Usually you need to show firm evidence of past, present and future earnings.
- You have an interest-only mortgage. The risk is higher as your home will need to have increased in value to cover the eventual repayment.
- Age Traditionally mortgage lending went up to around age 65, but nowadays many need to borrow much later – even into retirement, which carries more risk for lenders in terms of income, and a 25-year mortgage may be harder to come by.
5 ways you could escape the mortgage prison
- A good payment history – If your current lender (or your own bank) can see that you’ve been a reliable borrower, this could work in your favour when it comes to remortgaging, especially if you’ve paid off a good part of your mortgage and you’re not borrowing more.
- Improve credit report – Keeping up to date with credit payments can improve your lending credibility, and prove how well you can manage borrowing and repayments.
- Reduce outgoings – Do you need that gym membership, or meals out every other day? Especially for first time buyers, building up savings for a few months could help protect yourself against increased monthly costs and make you less of a risk.
- Use smaller lenders – High street lenders may have fixed lending conditions, but some smaller lenders could be more flexible.
- Free mortgage help – Fee-free mortgage brokers can help you shop around for the right deal to remortgage, whatever your circumstances.