Wednesday 05 June 2019

Are you a mortgage prisoner

Author: Cambridge Web Marketing

Are you struggling to meet your mortgage payments, but can’t swap your mortgage product? You’re not alone. There are thousands of so-called “mortgage prisoners” in the UK and financial regulators are realising the need to solve the problem.

What does it mean to be a mortgage prisoner?

To buy your home, you will have passed a mortgage affordability test. This shows the bank you can afford to repay your mortgage.

But the financial crash of 2008 has left an enormous footprint not just on the economy but on the individual financial positions of ordinary people too. Changes in circumstances mean thousands of homeowners with a mortgage no longer pass the affordability test. You may not even know you have this problem until you come to re-mortgage or try to jump onto a better deal – and get told you can’t.

This means homeowners can sometimes be trapped into the bank’s standard variable rate (SVR), on which monthly mortgage repayments can get higher.

What has caused this financial crisis?

There are many more reasons why a homeowner may be a mortgage prisoner other than the financial crash. For example, the maximum mortgage is based on the ratio of earnings against property price, as well as equity such as the amount of deposit you have to put against the purchase. In the case of re-mortgaging, this will also be the change in the value of your property.

But if your salary has decreased over the years, perhaps as a result of losing your job and accepting a lower-paid position, the ratio of earnings to property value changes. As it does if your property’s value has not increased as much as predicted or if there is negative equity (the price you paid for your home is more than its current value).

What help is available?

There is a growing pool of help available, fuelled by the growing awareness of the problem within the banking industry and the financial industry regulator, the Financial Conduct Authority (FCA).

Increasing the equity in your property is one option, and you can achieve this by overpaying on your mortgage if your finances will allow for it. Increasing your earnings and reducing debt and other outgoings are also excellent moves in terms of managing your money and mortgage. Selling your property and downsizing is another option that mortgage prisoners have chosen to take.

Although these are all prudent ideas, they are not always feasible for every homeowner. In May 2018, the FCA announced that it wanted to do more to helped trapped borrowers. According to @Bankrate, the FCA estimates there are over 30,000 homeowners battling expensive mortgage repayments and who can’t switch.

The FCA suggests mortgage holders could swap to better products with their current bank without undergoing the full affordability check. They also want lenders to do more to help homeowners who are up to date with their mortgage but are facing hefty repayment mortgage interest rates pre-2008 financial crash. Lenders have agreed to contact eligible customers directly.

Mortgage advice

Whether you are stuck in your existing mortgage or want to remortgage, seeking expert advice is key to finding the right product. With the mortgage market changing frequently, you need to get the latest mortgage advice before making a decision. Give our team a call to discuss your current mortgage needs.

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Written by: Cambridge Web Marketing