Are you stuck in a mortgage that you cannot escape?
Interest rate rises. Inflation. Cost of living crisis. Housing market shifts. All of these things are prevalent in the UK at the moment, and as a result, they are impacting most households' financial situation. But have you heard of the term 'Mortgage Prisoners'? Read this article to find out more...
The interest rate increases are having a particular impact on the mortgage market, and the costs for every household are rising. This has led to a new headline phrase - 'mortgage prisoners'.
Those who may have a larger mortgage - large compared to the property's value or 'loan to value' rate - may be coming to the end of the initial fixed rate term.
When a mortgage ends the initial fixed rate term, the payments will switch over to the lenders' SVR, or standard variable rate. The SVR is set at a certain percentage higher than the Bank Of England Base rate, which, for most mortgage deals of 2 years or more, would have been almost 0% at the time.
Because the Bank of England base rate has risen so dramatically within a relatively short time, these standard variable rates are now astronomically high, with many homeowners reporting monthly payments almost doubling!
Banks are trying to head this situation off by alerting homeowners at least 6 months before the end of their fixed rates, informing them of the monthly costs and how much their monthly payments will increase. This is good and allows people to get used to the new monthly costs. But it doesn't help us find the money for that new, higher monthly payment.
The term' mortgage prisoner' refers to those who cannot remortgage their property with their current lender because, even though they are up to date with their payments, their lender is no longer lending. They are essentially an inactive lender.
This leaves unsuspecting homeowners unable to refinance their loans with their current lender, and they either have to pay the SVR, irrespective of how high that may be, or completely remortgage to a brand new lender. If you've ever remortgaged a property before, you will already know that this can be a lengthy process and require endless paperwork and forms.
The term is also being used for homeowners who can not leave their current mortgage because, during their fixed rate, their financial status and possibly credit rating have changed, meaning they no longer meet a new lender's affordability criteria.
Effectively, you are stuck, a prisoner in your own home because of your mortgage. You can't change to a new lender, so you have no choice but to pay the SVR, regardless of how high that might be. Inevitably, unless this SVR figure is affordable, you may have no choice but to sell the property to pay off the mortgage.
So, if you're in this situation, do you wait and see if the interest rates charged by the lenders come down slightly? Or do you lock in a rate as quickly as possible so you don't have to find the money to pay the SVR?
There is no crystal ball or way of knowing exactly how things will go. The mortgage lenders may start reassessing their rates in competition with each other as the number of property sales in the market slows down. Perhaps now is the right time to think about selling up so that you are not stuck with the high payments of your SVR.
If you want to know where you stand and need some advice on the best course of action for you, give our team of property experts a call.