Thousands of mortgage prisoners caught paying high interest rates due to affordability rules could be given more help from lenders.

The Financial Conduct Authority (FCA) has proposed ways to help 150,000 mortgage prisoners paying high interest rates and unable to move due to changes in affordability rules.

Since the financial crisis of 2008 the FCA has introduced strict affordability rules for lenders checking new applications since 2014 and many homeowners are unable to switch mortgages.

This means if you have an interest only mortgage you could be caught on the standard variable rate (SVR) which are often much higher than the best mortgage deals, despite keeping up-to-date with their payments.

Thousands could benefit from new deals

The FCA has identified a significant minority of about 30% of homeowners that have failed to find the cheapest mortgage.

It wants to help longstanding borrowers who are currently unable to switch to a better deal, often referred to as ‘mortgage prisoners’.

Of the 150,000 mortgage prisoners about 30,000 were with authorised mortgage lenders and about 120,000 had mortgages with non-regulated firms.

For those that cannot switch due to the lenders affordability rules, it may be possible to use equity release as many provider fixed interest rates are competitive and do not require you to prove your retirement income.

Find out how you can repay the lenders interest only mortgage and the interest rate using equity release using this link:
Free equity release calculator with instant figures to relay your current loan to the lender.

Christopher Woolard Director of Strategy and Competition at the FCA said, there are also a number of longstanding borrowers that have kept up-to-date with their mortgage repayments but are unable to get a new mortgage deal.

It may be possible to move to a retirement interest only mortgages (RIO) which can operate for your lifetime, however, lenders would need to ensure this is affordable based on your retirement income.

The FCA has considered an industry-wide agreement to approve applications for a new mortgage deal from existing customers whose most recent mortgage was taken out before the financial crisis and who are up-to-date with payments.

There is no easy way for a consumer to be confident of the mortgage they may qualify for and this is a significant impediment to shopping around.

For home movers wanting to trade up, you will need to show you have the earnings to support a larger mortgage, as lender affordability checks include outgoings such as child care, holidays and living costs.

Market works for many borrowers

The regulator has confirmed the mortgage market is working well for the many borrowers such as first time buyers, home movers and remortgage buyers.

This does not apply to buy-to-let landlords as they must have a 25% deposit and show the rental income can exceed 125% of a higher notional mortgage interest rate.

There are high levels of choice and consumer engagement in the market with over three quarters of consumers switched to a new mortgage deal within six months of moving onto a reversion rate.

Mr Woodlard said, the mortgage market is one of the largest financial markets in the UK and there have been significant changes to the market since the financial crisis in order to ensure that we do not return to the poor practices of the past.

For older homeowners with interest only mortgages, downsizing your home and releasing cash is possible for the equity release buyer using a lifetime mortgage with no affordability checks, allowing you to retain 100% ownership of your new property.

Mortgage prisoners that want a higher quality of life by relocating and buying a new property such as by the coast or in a national park, can achieve this with equity release.

No repayments are required for your lifetime and you can choose to pay the interest each year or allow this to roll-up over time with the opportunity to leave your home to your beneficiaries.

What are your next steps?

Our London City Mortgage advisers can recommend the equity release best products if you are repaying an interest only mortgage and manage the process to the provider valuation and offer.

Lean about the ways to repay your existing residential mortgage and the options for relocating and buying a new home at this link:
Free equity release quote with the best products to relocate to a new home.

Our mortgage advisers can find the best lifetime mortgage products to meet your needs. Learn more by using the equity release calculator, property value tracker chart and mortgage costs calculator.