I’m a mortgage prisoner – What can I do?

I’m a mortgage prisoner – What can I do?
Home Blog I’m A Mortgage Prisoner – What Can I Do?
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: April 8, 2024

Being a “mortgage prisoner” refers to a situation where you’re unable to remortgage to a more favourable deal due to changes in lending criteria, despite keeping up with your current mortgage payments.

This predicament can arise from various circumstances, such as the property’s value decreasing below the mortgage amount (negative equity), changes in your financial situation, or tighter lending standards introduced after the original mortgage was secured. As a result, you can end up trapped in your current mortgage, often at higher interest rates, without the ability to switch to a loan with lower payments.

This situation can lead to financial strain, as you’re locked into unfavourable terms that might not reflect your current financial capability or the wider market conditions, limiting your ability to reduce your living expenses or to save.

What to do if You’re a ‘Mortgage Prisoner’

If you’re trapped in a mortgage and, for various reasons, are unable to switch to a new mortgage provider to get a better interest rate, you’re a mortgage prisoner.

It’s not unusual, there are thousands of people like you, trapped by circumstances beyond their control.

This is usually because their financial circumstances have changed, preventing them from meeting a new mortgage provider’s affordability requirement, or an issue with the property that occurred after you bought it.

The problem can be compounded if you’re on your lender’s standard variable rate (SVR), as these are usually more expensive than fixed-rate mortgages.

How to escape from a mortgage prison

Depending on your financial circumstances, there are several options open to you to help you break out of the mortgage prison.

Overpay your mortgage

Overpaying your mortgage can be a strategic move, offering a pathway to increased equity and potentially more favourable mortgage terms in the future.

By paying more than the required monthly amount, you can reduce the principal balance faster, shortening the loan term and saving on interest payments over the life of the mortgage.

However, it’s crucial to consult with your mortgage provider first, as some lenders may charge early repayment fees for overpayments beyond a certain threshold.

Making overpayments when possible can serve a dual purpose: accelerating the journey to outright homeownership and improving the loan-to-value ratio. This could enhance eligibility for refinancing under more advantageous rates, offering a glimmer of hope if you’re feeling financially constrained by their current mortgage conditions.

Increase your equity

How much of your home you own, also known as equity, will make lenders more receptive to your application.

Equity, the portion of your property that you truly “own,” grows not only with each mortgage payment that goes toward the principal but also through market appreciation or strategic home improvements that boost the property’s value.

A significant injection of cash, whether from your savings or the sale of assets, directed towards your mortgage can also rapidly increase equity.  This bolstered equity can make you more attractive to lenders, potentially opening the door to refinancing options with lower interest rates or more favourable terms.

For mortgage prisoners, growing home equity can be a vital step towards securing financial relief and moving towards more sustainable homeownership.

Protect your credit rating

A good credit rating goes a long way toward convincing lenders that you are financially responsible and a good risk.

Pay any debt such as credit cards, utilities, phone contracts etc on time. Get rid of any outgoings you don’t need … Do you need Sky, Netflix and Amazon?

If you have bad credit, then take a few months to repair it before applying for a new mortgage.

Downsize your home

Downsizing involves moving to a smaller home or a less expensive area, potentially reducing your mortgage payments and increasing your equity. However, you should carefully consider the timing of the housing market, costs associated with selling and buying (such as estate agent fees, moving costs, and stamp duty), and the emotional and practical implications of moving to a new area or a smaller space.

The impact of downsizing on your quality of life and future financial goals should also be evaluated. If your current mortgage terms heavily impact you, downsizing could offer a viable path to financial relief, but it’s essential to weigh the financial benefits against the personal and lifestyle changes that accompany such a decision.

This approach not only reduces mortgage pressure but can also realign housing needs with current life stages, potentially offering a fresh start or a more manageable living situation.

Switch to a lender prepared to relax borrowing rules

This may be the best option for many people trapped in mortgage prison, providing they meet the criteria.

The Financial Conduct Authority (FCA) set new provisions that allow lenders to perform a ‘modified affordability assessment’, which allows lenders to waive some of the affordability checks.

It is important to understand that it is entirely optional as far as the lender is concerned, so they can relax the affordability checks, but only if they choose to do so.

All lenders are different, but you could be eligible if:

  • There is a minimum of 5 years remaining on your mortgage
  • The outstanding mortgage must be at least £50,000
  • You have been up to date with your mortgage repayments for at least 12 months
  •  You do not intend to ask for a higher mortgage
  • Your loan to value (LTV) is no more than 75%
  • If you’re on an interest-only mortgage, you’ll need a clear repayment plan in place

Maximise your chances of approval, whatever your situation - Find your perfect mortgage broker