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Are you a Mortgage Prisoner

are-you-a-mortgage-prisonerStuck on unfavourable lender’s rates?

There is a huge divide in the UK in what homeowners are paying in mortgage rates. Some are cashing in on Fixed Rates close to 1%, whilst others are stuck on their lender’s SVR paying over 5%, becoming so-called “mortgage prisoners” due to new lending policy.

This article does not constitute advice.
Professional advice should be taken prior to acting on any part of it.

Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Interest rates are low, but not everyone is winning

Even though the Bank of England rate is just one point from zero, (0.25 %), it doesn’t mean everyone is feeling the benefit.

Standard Variable Rate (SVR) mortgages broadly follow the Bank of England (BoE) base rate, however, they are determined by the lender, not the BoE. Lenders are not obliged to pass on rate cuts and lenders can change their rates at any time.

Subsequently, homeowners who end up on an SVR are typically those that are unorganised with their finances and end up defaulting to their lender’s SVR.

Whilst an SVR typically offers more flexibility to be able to switch deals and lenders, unlike a Fixed Rate mortgage where redemption penalties often apply, not everyone is able to “go with the flow” when they have an SVR.

This is because lenders are cleverly locking in customers through “collars” to their contract which commit the borrower to their SVR for a certain length of time, at a certain, higher rate.

Homeowners are told they fail to meet new lending criteria needed to access the cheaper rates they are offering new customers, making them mortgage prisoners.

Mid to high-earners are even affected

This isn’t just happening to low-earners. Even high earning homeowners, with perhaps some modest other debts, are being told that they don’t meet credit checks. This leaves them in a position where they are watching others reap the rewards, whilst they suck up a big monthly mortgage payment.

Fortunately, most higher paid homeowners can afford the higher mortgage rates, so they are unlikely to default like lower earners, but who wants to be paying money in mortgage interest when it can be avoided, or used for the next holiday?

Many so called, “mortgage prisoners” have challenged their lender’s decision to keep them on an SVR and are awaiting the decision from the financial ombudsman.

Take care and plan ahead

Fewer homeowners are opting for rates linked to the BoE base rate. Even though the rates are low for some Tracker mortgages, there are a good range of Fixed Rate options also with low rates.

Many customers are choosing to lock in these Fixed Rates for security.

If you have a Fixed Rate mortgage though, be sure to plan ahead for when the term finishes. Don’t fall into the trap of getting stuck on your lender’s SVR unable to switch to other, better deals. Work with a specialist mortgage broker who can help you access the best rates at the right time for you.

Need help with your mortgage? Speak to Chris

ChrisWhatever your mortgage situation, specialist mortgage adviser, Chris will be able to help outline your options and advice on the best rates for you.
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