Share

One in seven homeowners becoming a mortgage prisoner

  • One in seven homeowners unable to remortgage due to new rules
  • ‘Mortgage prisoners’ face being stuck on high standard variable rates

Marc Shoffman for Thisismoney.co.uk

Homeowners are facing being left on expensive standard variable rates due to tougher mortgage application rules.

Data from Nottingham Building Society shows up to one in seven homeowners have had difficulty getting a new deal since the Mortgage Market Review was introduced in April 2013.

‘Mortgage prisoners’ are missing out on some of the cheapest-ever rates on the market, with 26 per cent rejected because they do not fit new affordability rules or because their credit record has deteriorated.

'Mortgage prisoners': Many homeowners cannot move deal due to tougher lending criteria

‘Mortgage prisoners’: Many homeowners cannot move deal due to tougher lending criteria

The Mortgage Market Review was introduced in April 2013, bringing in new application and affordability rules to ensure borrowers could manage their mortgage repayments.

Previously lenders relied on a multiple of a borrower’s income but now applicants must answer questions on their spending habits and undergo stress tests on how they would cope with rate rises.

This even applies to homeowners who are remortgaging, meaning they could find it tough to move to better rates at the end of their deal period.

The Nottingham Building Society research found 26 per cent of its homeowners were expecting rising costs, and 8 per cent were anticipating a substantial rise in repayments.

The life of a mortgage prisoner 

If a homeowner cannot remortgage then it is likely they will be moved onto a lender’s standard variable rate at the end of the deal. This is often much higher than a fixed-rate deal.

Currently the average standard variable rate is 4.5 per cent, according to the Bank of England, while average two-year fixed rates at 75 per cent loan-to-value are 1.91 per cent.

On a 25-year £200,000 mortgage, a 4.5 per cent rate would cost £1,111 month, while the 1.91 per cent rate would be £273 cheaper at £838.

There is also always the risk of the SVR increasing.

Ian Gibbons, senior mortgage broking manager for the building society’s Nottingham Mortgage Services, said: ‘With rates remaining low, it is potentially a good time to remortgage to a new deal but unfortunately it is not always that simple.

‘With more than a quarter of those who have tried to remortgage in the past two years not being able to secure a new deal it is clear that homeowners need to think carefully and research the market.

‘People’s circumstances change and seeking help from a broker to get an independent view on the best deal available to a customer is a very sensible approach.’

The best deals on the market for a remortgage 

Despite constant speculation of interest rates rising, mortgage deals have remained low. 

Post Office Money currently has a two-year fixed rate of 1.15 per cent with a £1,995 fee at 60 per cent loan-to-value. 

For a longer-term fix at the same LTV, First Direct has a five-year fixed rate at 2.19 per cent with a £1,450 fee.

For a 25 per cent deposit, Chelsea Building Society has a two-year fixed rate of 1.34 per cent with a £1,675 fee, or for a five-year fix First Direct has 2.48 per cent rate with a £1,450 fee.

At 90 per cent loan-to-value, HSBC has a two-year fix at 2.19 per cent, or a five-year deal at 2.99 per cent. Both have a £1,499 fee.

 

This entry passed through the Full-Text RSS service – if this is your content and you’re reading it on someone else’s site, please read the FAQ at fivefilters.org/content-only/faq.php#publishers.

Leave a Comment

four × one =