Mortgage declined or refused? You could be one of thousands of mortgage prisoners.
New lending rules (the MMR or Mortgage Market Review to give it its formal title) were introduced in April 2014 that mean mortgage providers have stricter affordability checks than before. This has lead to an increase in what has been termed 'mortgage prisoners' as some homeowners are discovering it can now be difficult to remortgage.
1. What exactly is a 'mortgage prisoner?'
A mortgage prisoner is someone whose existing mortgage product has come to an end and is now trapped on an often higher Standard Variable Rate (SVR) because they are unable to shop around to get a better deal. Despite having a good payment record and no change in circumstances, they are struggling to access a competitive deal with their existing mortgage provider (and possibly other lenders too) due to failing affordability tests.
The new MMR rules weren't intended to prevent people from accessing a mortgage but simply to prevent excessive borrowing, ensuring that homeowners can pay back their loan should interest rates rise in the future. Therefore, if a customer doesn't meet the new affordability checks but their circumstances haven't changed and they are not looking to increase their borrowing, then their provider is allowed to assess their application for a new mortgage deal without applying the affordability tests. This is referred to as a 'transitional arrangement'.
3. So why are some mortgage lenders not applying transitional arrangements?
In most cases, although not always, mortgage providers can apply transitional arrangements to their own existing customers. However for these mortgage prisoners wishing to access greater choice across the market they are finding that other lenders are refusing new customers who don't meet the MMR affordability tests, without giving any consideration to the transitional arrangements. Often the provider's application process is automated and the systems will automatically turn down customers who don't measure up, or simply doesn't want what it considers to be riskier customers. Many mortgage providers rely on automated computer assessments so there is
no flexibility to consider each case individually.
4. What can homeowners do if they are a so called 'mortgage prisoner' or can't remortgage?
Existing homeowners who with to remortgage need to demonstrate that they have held a mortgage prior to 26 April 2014 and
- have always made their mortgage repayments on time
- have had no change in circumstances
- are not looking to increase the size of their mortgage
and then they need to seek out a mortgage provider who is,
- prepared to take on remortgage customers from other providers who will apply transitional arrangements
- prepared to assess their mortgage application on its individual merits.
The latter is known as manual underwriting which means real people review the initial mortgage application which is more likely to be beneficial to homeowners in this situation.
5. What if the homeowner's circumstances have changed?
There are many reasons why householder circumstances might have changed, such as a new addition to the family meaning a reduction in income and / or an increase in expenditure; a redundancy; a long term illness; taking out a large loan for a car purchase or home renovations. If this is the case, the homeowner will still be better off seeking out a mortgage provider who will assess their circumstances individually using manual underwriting. Some providers may still be happy to lend to the homeowner if the homeowner can prove they can afford the repayments.
6. Does Ipswich Building Society help mortgage prisoners?
Yes - absolutely. We pride ourselves in offering mortgages to people who don't necessarily fit the automated processes of many larger lenders and banks - we call these people 'mortgage misfits'. We don't promise to lend to anyone and everyone but we do promise to consider cases that do not meet affordability using transitional arrangements and take an individual approach to assess income and expenditure. Further more we have qualified mortgage professionals who will consider all applications on an individual basis.