There are 200,000 mortgage prisoners in the UK, ensnared in high-interest mortgages and unable to sell or remortgage.
Some have been in this position for 10 years or more and, worryingly, there are more on the boil.
The good news is that brokers can help.
Soaring rates combined with falling house prices could be creating what Sarah Olney, the Liberal Democrat spokesperson for the Treasury, calls “a negative equity ticking timebomb”. Fears are that this could see a further 10,650 owners trapped in their home and at risk of being hit by higher rates.
Whether the client is 53 or 103, lenders can be more lenient
While Olney is calling on ministers and regulators to come up with a plan to “help homeowners on the brink”, the Financial Conduct Authority believes that a third of mortgage prisoners should be able to switch to lower rates. Ultimately, this boils down to lenders modifying their affordability assessment.
The original mortgage prisoners took out their secured loan before 2014, when lending rules were more relaxed. Some have been paying interest rates as high as 9%, unable to switch to a cheaper one because they don’t pass today’s affordability tests.
This is of particular concern to older borrowers, especially those who are nearing retirement, are retired or have no typically accepted source of income.
Other mortgage prisoners include those who find themselves in negative equity, when a property’s value drops below the borrowed amount. This could leave them trapped if they’re unable to sell their property without a substantial payment to the lender.
People aged 50 to 90-plus deserve to be listened to. They have the right to be offered good mortgage advice
Remortgaging also becomes a problem — potentially forcing them onto more expensive rates when their fixed-rate mortgage deal expires. This is no doubt a concern for some of the 1.5 million people whose fixed-rate deal expires this year — many of whom will be more than 50 years old.
Ageing population
In 2022, LiveMore surveyed more than 2,000 homeowners aged 50-plus. Only 4% of respondents aged under 80 believed they could get a mortgage. This dropped to 2% for those aged 80 and above.
Depending on a borrower’s circumstances, they could meet the criteria for 200+ potential mortgages
That amounts to a huge number of borrowers paying their lender’s standard variable rate (SVR) because they believe there’s no option for them to remortgage.
But we are an ageing population, and society is adapting to that, including our attitude towards lending.
Between April and June of the following year (2023) there were 30,400 mortgages agreed for borrowers aged 50-plus, worth a total of £4.3 bn, according to UK Finance. More than 5,000 of these were for borrowers aged 70-plus. And 60% of all the new loans agreed were due to end after the borrower’s 65th birthday.
Until the scrapping of the affordability test in 2022, borrowers had to prove they could cope with a future rise in interest rates. Now, however, it is up to lenders to set their own affordability criteria.
In our survey, only 4% of respondents aged under 80 believed they could get a mortgage
Some lenders are happy to carry out a modified affordability assessment. Whether the client is 53 or 103, they can take a more lenient approach to the definition of income, viability of assets and type of property they’d be lending against. For example, some lenders accept non-standard construction, property near commercial premises and pylons, buildings containing spray foam and properties in flood-risk zones.
Depending on a borrower’s circumstances, they could meet the criteria for 200+ potential mortgages. from standard capital and interest, standard interest-only and retirement interest-only mortgages through to lifetime mortgages/equity release.
One of the most painful adages of this whole scenario is that of mortgage prisoners ‘who can’t afford a cheaper rate’. Well, it’s different now. More and more lenders are approving applicants who can simply afford to make monthly interest payments.
The Financial Conduct Authority believes that a third of mortgage prisoners should be able to switch to lower rates
This, along with the ageing population, makes later-life lending a growing market full of short- and long-term opportunities for brokers.
The Consumer Duty notwithstanding, people aged 50 to 90-plus deserve to be listened to. They have the right to be offered good mortgage advice and our industry can provide this.
They may not use the term ‘mortgage prisoner’ but so many people mistakenly consider themselves ‘trapped’ on an exorbitant SVR. Brokers and lenders can help them.
Nicola Palmer is key account manager (South West) at LiveMore
This article featured in the March 2024 edition of MS.
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