by Mark Johnston
Should ‘Mortgage Prisoners’ Now Look To Move Their Mortgages?
Prisoners Mortgage are a by-product of the credit crunch and the new world order of mortgage finance post 2008.
Mortgage Prisoners are people trapped with their existing mortgage product and unable either to move their mortgage to another property or remortgage with another Lender.
According to figures from the Council of Mortgage Lenders (CML), one in 12 homeowners, around 827,000, are currently in negative equity, this is where the value of their home is less than the amount of mortgage they owe. Because they are locked in negative equity, hundreds of thousands of hard working people are unable to move to a new home.
Although it now seems that evidence is building that many borrowers can and should be looking to remortgage to a better deal while they can.
Recent research suggests that many house holders pay too much for home loans by sticking with their original lenders when there are better deals out there.
New research from HSBC estimates that 4.4 million borrowers, representing 39 per cent of the total mortgage market, are currently stuck on their lenders’ standard variable rate (SVR). Most are paying over the odds with the average standard variable rate (SVR) at a hefty 4.86 per cent
Despite this, the bank says an estimated 3.6 million of these borrowers have loan to values (LTVs) below 85 per cent and could therefore snap up a better mortgage rate.
Many borrowers languishing on their lenders’ standard variable rates (SVRs) have come off fixed or discounted-rate mortgage deals which were available two or more years ago and are now free to remortgage without having to worry about early redemption penalties.
Equity is key to getting better remortgage rates, so if consumers have savings sitting in an account earning little interest it would be better spent paying off a chunk of their mortgage. A decent loan to value (LTV) will mean more options and better rates, so dropping down by as little as 5 per cent can make a real difference.
“With so many negative stories suggesting how difficult it is to get a mortgage, many people will be sitting on their lender’s standard variable rates assuming that they can’t remortgage. However, it is always worth checking to find out whether this really is the case as you may be pleasantly surprised,” says Mark Harris of mortgage broker SPF Private Clients.
Also all Banks are to be told to rescue middle-class ‘mortgage prisoners’ by loosening lending restrictions.
New mortgage application rules, which are to be announced next week by the Financial Services Authority (FSA), will give banks the green light to approve loans to trapped home owners. This will apply to those whose loans amount to a very high proportion of their home’s value and even those in negative equity.
However, the loosening of restrictions will be allowed only for good customers who have never had any problems repaying the mortgage they took out. Those who have struggled with their payments will face tougher tests being imposed on all new customers.
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