New rules from the Financial Conduct Authority (FCA) mean that for many people who cannot switch to a more affordable mortgage, there might be help on the horizon. Under the new rules, lenders have more flexibility to help.
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.
Most recently, it has been highlighted that some homeowners have become mortgage prisoners and paying high interest rates after the Treasury sold their mortgages to unregulated firms.
Unable to switch to a better deal when their initial terms were up, they have been forced to pay standard variable rates (SVRs) which are much higher than traditional mortgage rates, taking the possibility of remortgaging off the table completely.
Are you a mortgage prisoner?
If you find yourself locked into an SVR due to the pandemic, you’re not alone.
Mortgage prisoners tend to be those who’ve purchased a home prior to 2014 and even if they were up to date with mortgage payments, they couldn’t switch to a better deal because of stricter affordability rules introduced after they bought their property.
Affordability assessments take your income and expenses into account to determine whether or not you can afford mortgage payments.
With the new rules, some lenders required proof that you could make your remortgage payments in the event of an unusually high base rate hike which priced out many people from better deals when it came time to remortgage.
Luckily, two years ago the FCA changed their rules again to allow lenders to make decisions based on a borrower’s mortgage payment history instead of the affordability assessment.
Unfortunately, the coronavirus has left some people with poor payment histories which is creating a whole new wave of mortgage prisoners.
Eligibility for help
The criteria lenders use to decide whether or not they’ll accept your mortgage application varies from provider to provider, but they might include:
- Minimum of 5 years remaining on the mortgage
- Minimum of at least £50,000 remaining on the mortgage
- Minimum property value of £60,000
- A loan to value (LTV) of no more than 85%
- The mortgage must be on your existing home (not available if you are letting out your property)
- No borrower changes
- No missed mortgage payments in the last 12 months*
- You might be required to present a copy of the letter your mortgage provider sent you explaining that borrowers who are unable to switch may be able to benefit from the recent rule changes if this is the situation that’s pushing you to attempt remortgaging.
*One key exception is that missed payments as part of deferral agreements with your lender because of COVID do not count toward the “no missed payments” criteria.
Unfortunately, if you have a buy-to-let mortgage, you don’t qualify for help. And if you are on an interest-only mortgage, you’ll be expected to present a repayment plan to pay off the outstanding balance.
We’re here to help
If you are a dental or medical professional struggling to work out if you will be eligible to remortgage, or if you’re unsure how to proceed if you find yourself a prisoner to your mortgage, we’re here to help. Get in touch with us for help with your remortgaging needs.
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