With mortgage rates so low, 2019 should be a great time if you want to remortgage or move house. But the Financial Conduct Authority (FCA) has published research showing there are 800,000 people in the UK who could benefit if they switch to a cheaper mortgage.
Most of these are people whose fixed rate has ended but who have stayed on their lender’s variable rate for more than six months. And most of them could switch, saving an average of £1,000 a year! If you are one of these, read After a fixed rate mortgage ends, fix again? which looks at what to do.
But the FCA thinks there are about 150,000 mortgage prisoners, who are unable to switch. The FCA would like to be able to do more to help them so it is making some suggestions about how this might work.
Who are these 150,000 mortgage prisoners?
The EU’s Mortgage Credit Directive (MCD) says that a lender taking on a new customer has to undertake a full affordability assessment. this applies even when the customer only wants to switch to get a cheaper, fixed rate on the same mortgage – they don’t want to borrow more money or for longer.
The FCA’s research has identified 30,000 consumers who could gain from switching are unable to switch. Almost all (96%) of them took out their mortgage (or last switched) before 2009.
Many of this 30,000 are self-employed or have interest-only mortgages – two groups viewed as higher risk who have found harder to find it more difficult to get mortgages after stricter lending criteria were introduced in 2014.
There are a further 120,000 people whose mortgages are currently owned by firms that don’t offer mortgages. For example, many old Northern Rock mortgages are currently owned by a firm, Landmark Mortgages which doesn’t offer new mortgages and charges a high variable rate of 4.79%.
So that’s 30k + 120k – the 150,000 mortgage prisoners the FCA would like to be able to help.
The FCA would like to help the 150,000 but it’s hard
The FCA doesn’t have any specific proposals in its May 2018 report. For the 30,000 people identified above, it says:
we are inviting views on whether and how to enable customers on an active lender’s reversion rate to switch to a better deal in certain circumstances, specifically if they: took out a mortgage or last switched prior to the tightening in lending criteria [in 2008/9], are up to date with payments, are not looking to borrow more, and have applied for an internal switch.
The position is even harder for the 120,000 people whose mortgages are with a firm who isn’t authorised to give new mortgages. As the FCA says:
We will begin discussions on possible solutions for inactive lenders with relevant firms, consumer groups and government. Although a firm might be authorised for mortgage lending, it may have stopped lending to new and/or existing customers. The FCA’s regulatory remit is a matter for Parliament.
That’s regulator-speak for “Sorry our hands are tied, there would have to be changes to the law.”
And the May 2018 FCA report doesn’t consider the problems of the thousands of people who had Northern Rock Together mortgages. If any of them do switch their mortgage to another lender the interest rate on their unsecured lending is then hiked. As Landmark says:
If you move your mortgage to another lender and leave the unsecured loan element as a standalone loan, then your loan is referred to as delinked. Please be aware that the interest rate on a delinked Together unsecured loan is charged at our standard variable rate plus an increase of 3%, 5% or 8%, depending on when you started your Together mortgage.
New moves in January 2019 for mortgage prisoners
In January 2019 Andrew Bailey, the FCA CEO, wrote to the Treasury Committee about mortgage prisoners. He said the FCA will consult on relaxing affordability rules for mortgage prisoners, so active mortgage lenders could give mortgages to these mortgage prisoners even though the new mortgages that would not currently pass the standard affordability tests providing that the customers would not be in a worse position than they currently are.
Which sounds fine – many of the mortgage prisoners can’t remortgage elsewhere because they have interest-only mortgages or a poor credit record.
But this will only help people in practice if mortgage lenders want to offer these mortgages. That is a commercial decision and all the FCA can do is say they may offer these mortgages, it can’t force them to. I do wonder how much difference this will actually make in practice.
Other people who have problems switching
In coming to its figure of 150,000, the FCA doesn’t include some groups who may want to change mortgages but can’t:
- about 140,000 people whose mortgage are close to the end have problems switching because their remaining mortgages are so small and most lenders have a minimum size and/or term. The FCA says most of these would gain little by switching as interest payments are not a large proportion of the monthly repayments you make in the last few years, but here is a story of one person who is desperate to switch but can’t;
- about 100,000 are in arrears. They may, in theory, be able to reduce their mortgage costs by switching but no other lender will take them on;
- people with a growing family may be in a house which is too small but who can’t afford to buy a larger one;
- people who have split up from their partner. They may be managing to pay the mortgage on their own but the affordability calculation may say they can’t, so they can’t remortgage into their sole name.
Easier to switch with the same lender
A new lender has to do a full affordability test, even if the new mortgage will be cheaper than your current one and you don’t have any arrears on the current one.
But it’s much easier to switch with the same lender. Most (85%) will not do new affordability or credit checks if you just want a cheaper rate on your existing mortgage.
So however bad your credit rating is, it’s worth asking your current lender if you could switch to a cheaper mortgage. Even people in debt management and IVAs may manage to do this.
Age limits on mortgages
Many of lenders have age limits on mortgages. These can badly affect people with interest-only mortgages who want to switch to a repayment mortgage but need a longer term for the new mortgage to be affordable.
The banks’ regulator, the Financial Conduct Authority (FCA), has made it clear that it wants lenders to take sensible decisions, looking at the interests of their customers and at the details of your case. A lender may have general guidelines that it won’t lend to anyone over 70, say, but it has to consider if there are reasons why the mortgage is suitable for you.
In general mortgage lenders are relaxing the age limits a bit. For example, in May 2016 Halifax raised its limit for the end of a mortgage to 80 years, but borrowing beyond retirement age requires proof of income in retirement.
You may find that smaller lenders are more flexible:
- In February 2018 the following building societies didn’t have any age limits on mortgages: Bath, Buckinghamshire, Cambridge, Chorley, Cumberland, Dudley, Family, Harpenden, Holmesdale, Leek United, Loughborough, Monmouthshire, Saffron and Vernon.
- In May 2018, Aldermore announced the maximum age at the end of a mortgage term will be 99 and Family Building Society has a maximum of 95.
- of course, you still have to show that the mortgage you want will be affordable. And if you are retired with a part-time job, the lender is unlikely to think you will still be working in your 90s!
Is a lender being unreasonable?
If you feel you have been badly affected by a mortgage lender’s refusal to give you a mortgage, or allow you to re-mortgage, or to port your existing mortgage. You need to first put your complaint in writing to the lender. If this is refused you can send it to the Financial Ombudsman.
In 2017, the Financial Ombudsman’s newsletter looked at several cases where people were refused a mortgage because of their age.
If you want a like for like remortgage or mortgage port, with no increase in the borrowed amount or the term, and where all parties to the mortgage remain unchanged, and you are refused, you should certainly take your case to the Ombudsman.
But if your problem is that your lender won’t offer you a remortgage or change your mortgage to a repayment mortgage because they are no longer offering new mortgages, the Finanical Ombudsman may be unable to help. for example in one decision the ombudsman concluded:
I have considerable sympathy for the position Mrs H is in. But in all the circumstances, I don’t think Preferred is acting unfairly or unreasonably. It simply isn’t in a position to offer any alternative to Mrs H other than the mortgage product she is currently on.
First published in 2105, this article is kept up to date. Last updated January 2019.
Can you get a mortgage with your debts?
Is a very long term mortgage a good idea?
Options if you have an interest only mortgage
Joe Easedale says
It usually isn’t as straight forward as one reason for decline. Lenders are reluctant to go into detail, as it can be subjective, but also; given one reason, an applicant can try to deal with that, only to still be turned down because there are others. Also, after decades of lending, I maintain that “Gut Feeling” it a perfectly satisfactory reason to decline, on its own, but I have never given that as a reason to the applicant.
Also, we the public, only get one side of the debate. The case of a couple who could afford the mortgage after their retirement is a case in point. Who is to say that their conduct with current account or credit card didn’t leave the lender feeling queasy for example? The applicants would likely reject that as a good reason, and pursue one that they could stomach, for their complaints. In addition, conventional lending wisdom says that working life is quite long enough to pay for a mortgage. Retirement should be debt free.
At the end of the day, a lender only makes a profit when they lend, BUT, a single bad debt takes lots of good loans to make up for and sucks the profits out of the lending book. Better if declined for a mortgage to examine your own financial outlook, and see if that can be improved in order to present a more positive image to a lender. They need to lend to make any money, they do not decline for fun.
Sara (Debt Camel) says
Hi Joe, of course there can be various reasons for declining a mortgage. But the lender cannot just say “you have failed the affordability test” if that should never have been applied or it has not been applied correctly. The FCA has stated “If a customer wants to port and there is no extra money being raised or a change to the mortgage terms that is likely to make a difference to affordability, there is no need to undertake an affordability assessment. ”
And if refusing a new fixed rate means that a current mortgage holder is trapped on a high SVR, the bank is making money from that refusal.
Joe Easedale says
Hi Sara,
I fully accept that if a lender is using excuses in order to maximise returns rather than for any valid reasons, that that is deeply wrong.
In my experience however, a valued customer would not be treated in this way. – I fully accept that I am now an old fuddy duddy and would not fit into a modern banking environment – if I ever did!
BUT, A customer who one wants to encourage to GO, either because of the conduct of their business or due to a future threat assessment, to decline any further requests can help to make that happen.’ ie they will choose to move themselves.
Also, a borrower with a good track record and well able to show their correct and prudent financial management, should be easily able to port their finances over to a new lender who should welcome them with open arms. Those that can’t do this, imho are not telling it like it is!
tania hussey says
I applied for a mortgage and it declined over a 100 pound payday loan back from 2012 ?? Can i complain
Sara (Debt Camel) says
No, but if the payday loan was repaid on time, there will be other lenders that may give you a mortgage, depending of course on the rest of your situation. Talk to a broker.
Julie P says
Hi
My husband and I have just completed paying off our DMP with full & final settlements. We hope to move home, and with the move we will have a large deposit (230Kish) and will need a mortgage of 150k…presently we have portable mortgage with Nationwide. Can you tell us if we have any chance to port or get a new mortgage? Or how we can go about being approved for a mortgage? When we have a poor credit score but have good affordability and a good deposit! Help! We want to move home! Regards.
Sara (Debt Camel) says
Hi Julie, if you don’t want a larger mortgage or to extend the term, then you should probably be able to port your current mortgage. Go back to Nationwide and ask again, saying that you intend to complain to the Financial Ombudsman as this article suggests if they refuse. the alternative is to go to a “bad credit” mortgage broker, but this will involve higher fees and a higher mortgage rate.
Paul Knight says
I have just been refused in principle by my lender.
Initially they used affordability. I then pushed back to say I”d read that FCA say they shouldn’t use this on a like for like port. They then said it wasn’t like for like due to Loan to Value.
What would understand LTV to be in relation to a port if it’s like for like? My view is that it’s clearly the same LTV ( or less if you have more equity) as when you took the original loan out. Any thoughts welcome please – thanks
Sara (Debt Camel) says
I would expect LTV to be the mortgage v the value of the new property. Is the new property much more expensive or cheaper than the old one?
Why do you want to port your mortgage – to avoid early redemption fees, because it’s cheap, because it’s Interest Only and another’s lender won’t give you one or because your credit is poor/you are too close to pension age so you won’t get a new mortgage?
Paul Knight says
Thanks Sara – i want to keep the mortgage due to my earnings, age now, it’s interest only and the rate
I understand it’s the new house but the question is what should be the max LTV on the house on a like for loan?
My view is it should be up to / no more than when the loan was taken out so to give an example for clarity:
Yr 2007
Loan taken out: 200000
House valued at: 300000
LTV ( rounded down ) 66%
Yr: 2017
Current House Val 580000
New House ( proposed purchase)- val at a min on 300000
Loan requested 200000
ie: LTV on proposed purchases the same as the existing loan – it’s a like for like port and the value of our existing home is not relevant
Do you agree or have a different view please? Thank you
Sara (Debt Camel) says
So you are trading down by the amount of the mortgage? Why don’t you simply pay it off?
Paul says
Hi
Because I would like to use the funds.
Downsizing would also reduce my fuel and council tax etc
Re: paying off I guess that’s what I’m trying to sense check – my view of like for like would be that the house I buy has to be a min Val as when I took the mortgage out but they want to use the house Val if my existing home. – not like for like in my view.
If you think about a scenario say where my current home had maybe dropped in Val
From 300 – 200 I’m pretty sure they wouldn’t be then offering 100% LTV on new home?
Sara (Debt Camel) says
You need to check what your mortgage details said. Often they say that a mortgage can be ported but the lender will still consider whether it meets their lending terms at the time. In this case it is unlikely that your lender would be prepared to lend a new applicant an interest only mortgage at the current 66% LTV – that may be what is being referred to here, nothing to do with what the LTV is on your current house at all.
In this sort of situation if you take your complaint to the Financial Ombudsman they will consider if it is fair for the bank to turn down you request to port, given all the circumstances of the case. I don’t know what they would decide. If it was me, my instinct I am afraid is to agree with the bank. By letting you extract such a large amount of equity and not at least massively reduce your mortgage, I think you are putting both yourself and the bank in a much worse position. IO mortgages have to be repaid at the end, at that point having less equity considerably reduces your options.
If you wish to extract some money, have you looked at getting a repayment mortgage for say 100k?
Paul Knight says
Thank you .
Do you mean offer to convert half the 200k to repayment?
Sara (Debt Camel) says
No, I mean to reduce your mortgage from 200k IO to a 100k repayment mortgage.
JoeEasedale says
LTV now is 34%. So you think that you should be able to take all the accrued equity out and leave the lender in a worse position? I don’t think so!
You are now 10 years older with 10 years less to pay off the £200k, with far less security for the bank than they have today.
I would never have agreed to this were I still a lending manager.
Depending on your other conduct over the years I would either want full repayment on sale, OR, if there was a darned good reason, a repayment mortgage for the £200k depending upon repayability, and age. OR a smaller repayment mortgage depending on the circumstances.
I really dont see why you do not think that the bank should also benefit alongside you, from the equity that they have financed for you over the last 10 years.
Paul Knight says
– Erm … the bank surely aren’t there to speculate on the property growth – ie: they don’t take any downside risk if the market fell.
If I got what I’m asking for it would simply be the same security as they had before – ie: IMO it’s porting the mortgage across. If I can’t do that then I will have to stay where I am for now as no point moving as no benefit to me IMO.
You are probably absolutley right in what you are saying … however my contention here is what a lay person would understand by porting is clearly not the same as the bank .. indeed several mortgage brokers I’ve spoken to are very surprised by this position and it’s not their understading either.
Paul says
Thank you
I’m on a long term rate now for life of mortgage
I’ve told them I can show proof of repayment vehicle as well.
I’m at final complaint letter stage so guess I’ll have to set out my stall to ombudsman as the lender haven’t shown an appetite for middle ground except possibly 34 % on new property i.e. Pay back some of the loan on the sale of existing but even on that point they haven’t explained how existing is valued ? Clearly we can’t wait for an actual sale Val as I need to know purchase budget so is this usually a desk Val or do they have do 2 vals – one for existing and one for proposed property ?
James AK says
Hi, did you go to Ombudsman on this? I have the same situation and would be interested to know how you got on. Also the bank in question if possible.
Sara (Debt Camel) says
It’s unlikely that Paul will see your question as his comment was 2 years ago.
James AK says
Thanks. You’re not aware of any other discussion of this?
JoeEasedale says
They would do a valuation on the new prop anyway. Re the existing one, I would be happy with the sale price adjusted by your own expectations and what you would accept. No one is going to be too worried if the actual figures come in a touch different after you have bought and sold.
If you have the selling estate agents report on their expectations when you agreed to put the prop in their hands, that would help. And of course, these days, there is always ZOOPLA. They could also adjust your new mortgage amount to account for eventual sale and purchase prices and provide you an offer letter expressing an amount in a range based on later actuals.
Make sure that your long term rate for life of mortgage follows you as well, one could argue that the life of the mortgage ends when you sell current property.
Deborah Atkinson says
Hi all, forgive me this is all very new to me. I have to port on interest only mortgage to a new property, as my disabled daughter needs a ground floor flat. been with Barclays since 2003 on an interest only portable mortgage. Im not changing anything on the mortgage except location.
Been in brach and the so-in-so’s said have to reapply and do the affordability criteria.and no interest only . How the bloody hell do you get through this bureaucratic corruption. We desperately need this new property for safety reasons. P/s whats is LTV?
Sara (Debt Camel) says
LTV is loan to value. Is your mortgage portable? Is the new property more or less expensive than the old one? When does your mortgage end and what plan do you have for repaying it?
Ansbeth says
I wonder if you can help me any advice is welcome. My house value as per Zoopla is £531000 but I only need a mortgage for the sum of £268000.
The problem I have is that our combined income is between £25-£30k. For the past few years I have been making additional payments off of the capital and will continue to do so, however, we are stuck in an interest-only mortgage and would really like a repayment mortgage but extending the term. No lender will allow us to change to repayment. What are my options?
Thanks
Sara (Debt Camel) says
How long is there left on the mortgage? How old are you both? How large are the payments you are paying off the capital each year/
Micky says
Hi,
We have an old northern rock (now landmark) mortgage of which we are stuck in. We took out the “together” mortgage and so if we port we are going to be potentially stuck with up to 8% interest to pay on the outstanding loan portion. We are not in a position to re-mortgage since I am a student, my husbands income is not as great as it used to be and we both would fail cc. We have had the house valued and figure if we sold we may end up with a £5,000 profit at best. We have to move one way or the other so we are considering cutting our losses and handing it back despite never missing a payment and paying through the odds over the years. Anyone who may have any information on old northern rock mortgages and how they are dealing or have dealt with it would be appreciated.
Thankyou
Swan says
Hi, I’m a Landmark customer too and completely feel your pain. I’ve just come off the phone with them and they said I can actually use both parts of my together mortgage, the secured and unsecured, and get a property for that total value when we port. I guess that the large 8% interest on the unsecured loan repayment for uncoupling would not come into being should you do the same and port both. I really don’t want to stay with them but have been refused elsewhere and this might just give a glimmer of hope and a chance to actually move. I really hope that helps you too.
Emma says
I had my first mortgage application rejected (due to affordability and me relying solely on my part-time income), I decided to persist and try a different lender and was accepted last September. I’m now worried that I could end up being one of the mortgage prisoners when it comes to the end of my fixed term unless I pursue additional employment. The affordability measures are so frustrating, I’ve never once missed a payment, have a squeaky clean credit record, and live comfortably on my part time income.
Sara (Debt Camel) says
how long is the term of your fix? Any idea if the equity in your house has gone up or down?
Sarah says
Hello Sarah,
I have recently divorced, though separated/and lived for six years from him. I have 4 Defaults, 3 will fall off credit search in February 21. And other default in 2022. I owe £1650 combined to 2 companies. My F/A has tried a building society for bad credit. My Ex does not want money from house, only name removed. House value 200k and remortgaging for 124k. This to pay off 6k to credit cards, and £1700 For two defaults. £2000 for F/A. Mortgage company now want evidence of savings of £1951, to cover 3 mortgage payments in the event of financial difficulties.I had not been told this until recently- application ongoing since may. . In May £5.200 paid to close defaulted loan also paid bank overdraft off. Leaving no savings and no evidence of £1951. My advisor told that I could recieve the gift off my partner- he owns his own place. He signed to say £2000 a gift and nothing to be gained from house etc. This rejected as they said only £500 could be done. My partnerS friend also purchased two 1980 bikes off me for £1700, this paid by partner to ensure funds available to me. Then told this unlikely acceptable due to partner gifting original £2000. They state that I have to have this from family, I am from a low class, non working family who I have been estranged from approx 20 years.
Closure of m/-application is Tuesday 22nd Sept. many thanks Sarah
Sara (Debt Camel) says
Not sure what I can say to help. Can your ex not wait another year? If the mortgage application fails he is going to have to.
No more bikes that could be sold?
Spare room for a lodger?
Sarah symmonds says
The house has gone up in value so not sure if he hoping for a sale. And hoping to have a share of equity. Though he walked near seven years ago now. And I have paid all old and continue to pay all debts and mortgage payments. My feeling is how can a mortgage discriminate me, for the fact no family in contact or financially able to help. Also if had they informed me at beginning £1951 needed to be saved I could of made sure it available. And then changed rules every time they given evidence.i feel that they wnat to say no. Regardless of what I do.
Sara (Debt Camel) says
Did your divorce not agree what was to happen to the house?
This is happening to a lot of people, lenders are largely to withdraw any offer and change it. Even high street lenders are doing this.
Sarah symmonds says
No, a straight forward divorce had. Due to being separated for over five years. We left finances out of it. As I believed I would have small issues with mortgage, as outgoing are low compared to earnings now. And I have not missed any mortgage payments. Unfortunately I had less surplus monies when he first left, and I also had my daughter as a dependent then also. Hence more amounts of surplus available now.
If I have a lower amount that agreed between myself and the debt companies link and Lowell. Does that class as a DMP, as I am not sure if it classed as that, only when a debt management company has completed this.
Sara (Debt Camel) says
I can’t say anything about what your ex may or may not be able to demand now. It is a shame you did not get this recorded when you got divorced.
If he isn’t pushing you, then the simplest thing would seem to be to wait for 6-12 months and hope the mortgage market gets back to normal and your credit record improves and you can pay off more debts.
A payment arrangement with a debt collector is the same as a debt management plan – to a mortgage lender they are both debts that could be a problem if you stopped paying or the creditor went for a CCJ, no difference between a DMP.
Sarah symmonds says
Thank you. He has been wanting his name off. I have just been informed that my sister now is not an option. As she does not own her own house. So I will have to give up for the time being. Many thanks.
Sara (Debt Camel) says
Look into getting a lodger? Anything else you can sell?
Sarah says
Sorry, I have things to sell. Thankfully my employer has given me a bonus of 2k. Which hopefully will be accepted. They Want to see it go into the bank now. So tomorrow they have extended the closing date. So I’m hoping they will accept. But have been made to feel that no mortgage wanting to be given. So I am sure something else will be added to the list to supply – as in extra funds. Thanks again Sara for your advice