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What is a mortgage prisoner?

What is a mortgage prisoner?

Jenni Hill
Last Updated 28 November 2023

There are lots of reasons why you might get rejected for a mortgage, from having a low income to a turbulent credit history. It’s usually possible to overcome a rejection and get a mortgage from a different lender, but some homeowners become trapped on an existing mortgage deal despite being responsible borrowers. When this happens, these customers are often referred to as ‘mortgage prisoners’. But what is a mortgage prisoner and which banks are helping? 

In this guide

What is a mortgage prisoner?

A “mortgage prisoner” is someone who is unable to switch to a new mortgage deal, even if they are up to date with their payments. There are lots of reasons why someone might become a mortgage prisoner, but it’s usually because they’re unable to meet the stricter affordability rules that were introduced after the 2008 financial crisis. 

Mortgage lending criteria used to be much more relaxed than it is today. In the 90s and early 2000s, 100% mortgages were extremely common, meaning buyers could easily get their hands on a property with no deposit at all. Some lenders even offered loans for 125% of a property’s value, giving borrowers enough to buy a house without a deposit and fill it with furniture. 

That all changed following the 2008 financial crisis, with many lenders tightening their lending criteria and rejecting customers who previously took out mortgages with no problems at all. 

What does a mortgage prisoner mean?

Being a mortgage prisoner means that you’re unable to remortgage your home, even if you’ve got a track record of paying your mortgage on time. As a mortgage prisoner, you may find yourself stuck with a high interest rate, making your mortgage deal more expensive than newer products on the market. 

This can be particularly frustrating because if you were able to switch to a new mortgage deal, your payments could be more affordable and you’d be less likely to get into financial difficulty. 

How do I know if I'm a mortgage prisoner?

Here are a few ways to know if you’re a mortgage prisoner:

1. You’re struggling to meet stricter lending criteria

If you took out your current mortgage before 2008 and you’ve been unable to remortgage due to stricter lending criteria, it’s likely that you are a mortgage prisoner. 

There are lots of reasons why your mortgage application might be declined, so one or two rejections don’t necessarily mean you’re stuck with your current mortgage forever. A mortgage broker may be able to help you find a flexible and understanding lender with experience helping mortgage prisoners. At Tembo, over 80% of our customers have previously been turned away by a broker or lender.

2. Your current mortgage is from an inactive firm

If your current mortgage is with a lender that’s no longer active, you’re likely to be a mortgage prisoner. Many mortgage prisoners have mortgages from companies such as Northern Rock and Bradford and Bingley, which collapsed following the financial crisis. 

When these lenders folded, their loan books were sold onto unregulated companies such as private equity firms. These firms technically became mortgage providers, despite not being authorised to lend money. Because these companies were unable to approve new mortgage deals, customers wishing to remortgage would need to switch to a different lender.

For some Northern Rock and Bradford and Bingley customers, remortgaging wasn’t too challenging. Others have been unable to meet lenders’ stricter mortgage criteria and find a lender willing to approve their application.

3. Your financial circumstances have changed

You might be a mortgage prisoner if you’re unable to switch to a new mortgage deal due to a change in your financial circumstances. If you’ve lost your job, become self-employed or you’ve accepted a role with a lower salary, lenders might be wary of offering you a new mortgage deal due to your affordability changing.

4. Your property has become ‘unmortgageable’

You might be a mortgage prisoner if your home becomes ‘unmortgageable’ due to unsafe cladding or another issue affecting your home’s value. 

What to do if you’re a mortgage prisoner

There are a number of things mortgage prisoners can do to improve their situation and increase their chances of getting a new mortgage deal. 

1. Overpay your mortgage

If you can afford to overpay your mortgage, this might make it easier for you to remortgage in future. This is because by overpaying, you’ll be increasing the amount of equity you have in the property while reducing the amount of debt you have. Overpaying can also reduce the amount of interest you pay overall, because you’ll pay off your mortgage sooner. 

Most lenders allow borrowers to overpay up to 10% of their outstanding mortgage balance each year without incurring any early repayment fees, but the exact rules can vary depending on your mortgage and lender. 

To find out exactly how much you can overpay each year, contact your lender or read through the documents you signed when you took out your mortgage. 

You might like: Should I pay off my mortgage early?

2. Increase your income  

If you’re eligible for a pay rise or you’re able to switch to a higher-paid role, you may be able to increase your borrowing potential and access a wider range of mortgage deals. 

Each lender will have its own mortgage affordability criteria, but as a general rule, most will allow applicants to borrow up to 4 to 4.5x their salary for a mortgage. If you’re eligible for a Professional Mortgage or Blue Light Mortgage, you may be able to boost your borrowing potential to up to 6.5x your income.

Play around with our mortgage calculator to get an idea of how much you might be able to borrow.

3. Boost your credit rating

You can increase your chances of getting a mortgage by boosting your credit rating. Improving your credit score won’t automatically free you as a mortgage prisoner, but it certainly won’t do you any harm. 

To find out how credit scores work and discover how to boost your creditworthiness, take a look at our guide: What is a credit score? 

4. Reduce other debts and expenses

When you apply for a mortgage, not only will the lender want to know how much you earn, but they’ll usually want to know how much you spend too. If you spend a large percentage of your income on bills, debts and even childcare costs, this could reduce your borrowing potential, making it harder to access the loan you need. 

By going through your budget, paying off your debts and removing any expenses you’re not making the most of, you may be able to increase your chances of getting a mortgage. 

5. Speak to a mortgage broker

If you’re struggling to remortgage due to affordability issues, it’s worth seeking expert advice. Here at Tembo, we specialise in helping borrowers and buyers boost their affordability, so they can remortgage onto a new mortgage deal or get on the ladder sooner. 

See if you could switch today

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Which banks are helping mortgage prisoners?

A number of banks are helping mortgage prisoners to remortgage their homes after the Financial Conduct Authority (FCA) introduced new Modified Affordability Assessment rules. These were introduced so that lenders could give mortgage prisoners a better chance at switching to a cheaper deal.

Here are just a few banks that are helping mortgage prisoners:

  • NatWest
  • West Bromwich Building Society 
  • United Trust Bank

All lenders are different, but you might be eligible for a modified affordability assessment if:

  • There is a minimum of 5 years remaining on your mortgage
  • The outstanding mortgage balance is at least £50,000
  • You’ve been up to date on your mortgage payments for at least 12 months
  • You don’t intend to ask for a bigger mortgage
  • Your loan to value (LTV) is no more than 75%

Get an expert on your side

Boost your chances of getting a mortgage even further by working with a mortgage broker like us. We have access to deals that aren’t available by directly applying through a lender. Plus, we could help you discover ways to boost your affordability, helping you to switch to a new deal.

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