150,000 homeowners trapped in costly mortgages they can’t get out of
AROUND 150,000 long-standing homeowners are “prisoners” of poor value mortgage deals and more must be done to help them, the UK's financial watchdog has found.
The majority took out their loans before the financial crisis of 2008 and are now stuck paying much high interest rates and unable to switch to better deals.
Since 2014, mortgage lending rules have been massively tightened, with mortgage companies now having to go through customers' income and outgoings with a fine tooth comb.
They've also got to be very careful about lending to people in or approaching retirement in case they can't keep up with repayments.
The result of the changes is that many homeowners can't move to cheaper mortgage deals because they can't persuade lenders that they'll be able to comfortably afford repayments.
Making things even more complicated, is that many of these so-called 'mortgage prisoners' have an interest-only mortgage.
That means their monthly repayments only cover the interest charged on the loan instead of chipping away at the cost of the property.
So at the end of the mortgage term, if they want to keep the property, they have to find a way to pay off the full loan amount.
Earlier this week, The Sun reported on the case of Len and Val Fitzgerald, who are 77 and 76, and now facing a £180,000 bill if they want to continue to live in their home of 17 years.
Today, in recognising the plight of mortgage prisoners across the UK, the Financial Conduct Authority (FCA) is now calling for reforms to make it easier for people to move to better deals.
One option is a voluntary scheme that would call on mortgage lenders to approve applications for a new deal from existing customers whose most recent mortgage was taken out before the financial crisis and who are up-to-date with payments.
How do you find the best mortgage deals?
Shopping around on your mortgage deal could save you thousands of pounds so always do your homework.
Websites including Moneysupermarket and Moneyfacts have mortgage sections so you can compare costs and all the banks and building societies publish deals on their sites too.
If you're getting confused by all the deals on the market, it might be worth you speaking to a mortgage broker, who will help find the best mortgage for you.
A broker will typically cost between £300 and £400 but could help you save thousands over the course of your mortgage - and often their fees are covered by the mortgage lender so you won't have to pay anything upfront.
You'll also have to decide on if you want a fixed-deal where the interest your charged is the same for the length of the deal or a variable mortgage, where the amount you pay can change depending on the Bank of England Base Rate.
Remember, that you'll have to pass the lender's strict eligibility criteria too, which will include close scrutiny of your income and outgoings and a thorough look into your credit file.
You may also need to provide documents including utility bills, proof of benefits, your last three month's payslips, passports and bank statements.
You can check out our guide to first-time buyer mortgage deals here.
Meanwhile, the regulator also found about 30 per cent of all mortgage customers are failing to find the cheapest offer, typically overpaying by £550 a year.
The watchdog wants to make it easier for borrowers to work out, at an early stage, which mortgages they qualify for so they can more easily compare the costs of different loans.
Christopher Woolard, director of strategy and competition at the FCA, said: "For many, the market is working well, with high levels of consumer engagement.
It intends to publish its final report by the end of the year.
Getting your foot on the property ladder can seem like an impossible dream for many.
HOME LOAN The £120K homes first-time buyers can afford WITHOUT putting down a deposit
And that's not surprising when you think first-time buyers now have to fork-out nearly £50,000 for a deposit to get their foot on the first rung of the property ladder.
But if you have scraped enough money, next you'll want to know how to find the best mortgage deal for your first home. Here's our guide.
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