It is estimated that as many as 1 in 7 UK homeowners have struggled to secure a new mortgage deal since the Mortgage Market Review tightened lending criteria back in April 2013.
Homeowners who are unable to secure a new deal once their existing ‘fixed period’ comes to an end are referred to as ‘mortgage prisoners’, and it is estimated that there may be as many as 4 million of them currently living in the UK. Homeowners in a wide range of circumstances are finding themselves shut out of better mortgage deals due to stricter mortgage lending criteria introduced after the Mortgage Market Review voiced concerns about mortgage affordability assessment.
Some of those affected by the criteria and commonly finding themselves mortgage prisoners include:
- Homeowners with children: Previously, the costs of childcare were given little consideration when considering mortgage affordability, but the new guidelines mean most lenders will now carefully consider what percentage of your income goes to pay for childcare and other costs relating to your children.
- Homeowners working in sales: Those working in sales often earn a significant percentage of their annual income through bonuses and commission. Previously, these bonuses may well have been readily accepted as income considered in affordability, but new rulings means that many lenders will now only consider 50% of bonuses or commission when deciding how much they’re prepared to lend.
- Self-employed homeowners: Since the demise of self-certification mortgages, borrowing as a self-employed homeowner has proven difficult. You’ll need to show verified accounts for the last 3 years and will be assessed on net profits, not turnover. If you’ve been self-employed for less than 3 years it is likely you’ll be unable to remortgage
- Homeowners with an interest-only mortgage – if you have an interest-only mortgage, you may find that you struggle to pass the affordability assessments. In this situation it is often best to speak to your current mortgage adviser about the best way for you to be able to afford a repayment mortgage.
If you’re struggling to remortgage your property, it’s important that you act sooner rather than later and seek reputable, independent financial advice.