The Mortgage Market Review (MMR) introduced new regulations in 2014 that meant mortgage lenders were required to apply affordability checks to mortgage applicants, which included a stress test and scrutiny of their incomings and outgoings to ensure the mortgage would be affordable. While this was commonplace among lenders before the regulation, the stricter affordability rules left some of those borrowers who secured their loan before MMR with far fewer options today - these are known as mortgage prisoners.
Life behind bars: the reality for mortgage prisoners
The Financial Conduct Authority (FCA) defines mortgage prisoners as long-standing borrowers who aren’t able to switch to a better deal. They identified that a wave of these types of borrowers first arrived due to taking out mortgages (often on an interest only basis) before the financial crisis in 2007/08, when providers were lending much more money and accepting much smaller deposits.
When some of these providers collapsed or exited the market, the mortgages on their books were sold off to other providers and investors, some of whom don’t offer mortgages and so borrowers has no chance of being able to swap to an alternative deal with the same lender. In cases where the borrower cannot get a new mortgage deal, mortgage prisoners remain ‘trapped’ on their lender’s Standard Variable Rate (SVR), which is often at a higher interest rate than a standard market-leading deal.
Our like-for-like remortgages provide greater opportunity for mortgage prisoners
The FCA has recently proposed changes to mortgage assessment criteria to target customers who are stuck on a Standard Variable Rate (SVR) with lenders that are no longer in business, but these aren’t due to come into effect until the end of 2019.
For those borrowers who cannot wait for the FCA’s changes, under the current rules we're able to offer an increased level of flexibility for borrowers through our range of like-for-like remortgages. These mortgages may be deemed more affordable than a standard remortgage product because we don’t need to ‘stress-test’ the interest rate when assessing an applicants’ affordability – instead, we calculate affordability on the product interest rate only.
Although this change sounds small, the difference between the pay rate and the stressed rate can add hundreds of pounds to a monthly repayment during the affordability assessment, illustrating the dramatic impact this change has on determining whether the applicant passes or fails their assessment – even though the product interest rate and therefore the monthly repayment wouldn’t change.
In addition, our manual underwriting and personal approach means we are able to take individual circumstances into account in every mortgage application. Applying this approach to our like-for-like range means that we can provide borrowers - whose access to mortgages is restricted because of the additional stress testing criteria - greater opportunity in this market.
Residential, shared ownership and later life options are available to direct applicants across England and Wales, or through intermediaries based in the Society’s heartland area and members of selected networks and clubs. Applicants must have been with their current lender for two years or more, must be up to date with their repayments, and must not be borrowing additional funds.
If you’re looking for a mortgage, we’ll do our best to help find the right one for you. Call us on 0330 123 0723 or send us a message and we’ll be in touch.