Finding the right key for mortgage prisoners

Ensuring your client is on the best deal they can access requires up-to-date market knowledge, says Sarah Green, director of intermediary sales at Virgin Money.

It’s frustrating when you can’t help a client, especially if they are trapped on a less than competitive deal through no fault of their own.

It’s not always possible to switch them to a lower rate, but you can usually help.

Who are mortgage prisoners?

Mortgage prisoners are borrowers who are trapped on a reversionary rate because something has changed since they took out their mortgage. That could be a change in the lending criteria or their LTV ratio, especially if they originally borrowed at a high LTV. Others may have had a change in circumstances – perhaps a lower paid job or redundancy.

Mortgage prisoners now find themselves sitting outside of mainstream lending criteria.

The 2014 Mortgage Market Review imposed stricter lending rules, putting some borrowers in the position of being unable to meet the affordability requirements of a new mortgage despite it being cheaper than their existing one.

This means that in the purest sense, mortgage prisoners can’t remortgage from their lender’s SVR to any new deal, because either their lender won’t allow it or they are not currently offering any new mortgages.

This is hopefully uncommon in your experience, as most active lenders allow a ‘mortgage prisoner’ to transfer to another deal with them, although the FCA estimates there are 30,000 of these true mortgage prisoners.

In addition, other borrowers have mortgages that have been sold to firms no longer authorised for lending, which can’t offer them a new mortgage. Around 120,000 of these, in addition to the 30,000 above, could potentially benefit from switching, according to the FCA.

Who else is trapped?

There are also many borrowers who are unable to remortgage away from their existing lender, perhaps because they don’t have sufficient equity or they won’t meet new affordability criteria. While they might feel trapped with their provider, they will usually have the option of a product transfer, so they aren’t stuck on their current deal.

You will also come across borrowers who may have recently become self-employed, or the last time they got a mortgage they self-certified their income, so they only have specialist options available to them.

Plus, there are buy-to-let landlords whose finances have fallen outside of new PRA lending rules, meaning they are restricted in terms of available remortgage options.

What are the rules?

There has always been the flexibility in the MMR for lenders to offer an existing borrower a deal without them meeting the new responsible lending rules if they simply want to remortgage and are not looking to borrow more.

The regulator recently went further, suggesting the adoption of an industry-wide agreement to approve applications from pre-credit crunch clients who are up to date with payments but do not meet current lending criteria.

The regulator said in its 2018 Mortgages Market Study Interim Report: “A number of longstanding customers would benefit from switching away from a reversion rate but cannot, despite being up to date with payments.”

Such an agreement would reinforce existing practices and potentially help around 10,000 mortgage prisoners.

Options for brokers

Even if your borrower is unable to remortgage to a new lender, their existing lender should be able to offer them a new rate.

Virgin Money offers existing borrowers a product transfer, so they never have to feel ‘stuck’ on SVR if a cheaper option is available. And because we pay a retention proc fee you will still be rewarded for your work.

It’s also worth double checking the equity position of your client as there has been a rise in the availability of high LTV mortgages across the market over the last two years.

And of course, specialist lenders may have products available at a lower rate of interest than they are currently paying.

It’s also worth contacting clients who were previously resistant to remortgaging to see if they are ready to make savings now.

Ultimately you want to help your client get the best mortgage they can access, that meets their needs and preferences. Unlocking clients from an SVR could save them significant sums and ensure you have a loyal and satisfied customer for years to come.