Did you take out an interest-only mortgage before 2014 and are now finding it impossible to switch to a new deal? Are you trapped in a mortgage you can’t afford? Have you been told you can’t re-mortgage due to the lack of equity in your property, or that you don’t meet affordability criteria? If this is you, then you may be what is now known as a Mortgage Prisoner.
What is a mortgage prisoner?
Prior to the change in mortgage regulations in 2014, very generous affordability criteria was applied to the assessment of mortgage applications by now mostly non-existent lenders. You may even recall being told that it wasn’t a problem if you had no deposit for your purchase, because the lender would be prepared to lend you this deposit with additional money for home improvements to make your dream property look just the way you like it.
In addition, it used to be the case that interest-only mortgages were commonly arranged with no repayment vehicles as a way of ‘getting your foot on the property ladder’.
Following the financial crisis of 2008, many of these major lenders collapsed, with their loan books sold to mortgage administrators who continue to collect on the debt to service the mortgage. Often these administrators were unable to offer their clients new products, meaning that their clients cannot take advantage of the ever-reducing interest rates. Sadly, as a result, tens of thousands of clients are still to this day stuck, paying standard variable rates of interest, which aren’t competitively priced.
Why you may be a mortgage prisoner?
The prelude to the financial crisis of 2008 witnessed risky lending practises. To reduce the risk of another financial crash, the European Union issued a Directive which was later implemented in the United Kingdom in 2014. This Directive reduced the amount lenders could loan against an applicant’s income, and also dictated the maximum loan amount an applicant can have against a property value. This new affordability assessment brought welcome regulation into the industry, but at the same time, this created barriers and marginalised hundreds of thousands of mortgage clients who now would not fit within the new criteria. Hence, the mortgage prisoner was created, beggaring thousands of unfortunate people.
The Financial Conduct Authority Review
The Financial Conduct Authority (FCA) conducted a market review in 2018. This review found that around 250,000 people are in ‘closed’ mortgage books with no way out. Over 90,000 of these borrowers have interest-only mortgages. Since this review, the FCA has been negotiating with lenders in order to find solutions to support mortgage prisoners. The aim is to reduce regulatory barriers, making it easier for mortgage prisoners to change to new lenders on lower rates.
You can find the FCA’s latest announcement on the link below.
Are you a mortgage prisoner, because your mortgage was mis-sold?
The FCA’s attempts at resolving the situation for many clients are welcome. However, their process doesn’t consider whether the mortgage you were advised to take out was suitable to your circumstances at the time you took out the mortgage. It could be – and I have seen this – the case that there were other more affordable options available to a client, which they were not advised about from their mortgage intermediary/broker.
It could be that you should have been advised against purchasing the property by way of an interest-only mortgage due to its unaffordability. At Truth Legal, we are experts in assessing your circumstances to establish whether or not you had been advised correctly at the time you entered the mortgage. If, after investigating the circumstances, we find that the advice to you was potentially negligent we will apply our best efforts to obtain you redress.
I am Maya Fayad: a former mortgage advisor, now a lawyer specialising in mortgage mis-selling cases.