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Millions Locked in Mortgage ‘Prison’

by Alison Smith

An estimated 3.5 million people in the UK (that’s around one in three homeowners) may be a prisoner to their mortgage, unable to escape to a new home or cheaper rate.

Those experiencing the most difficulties are more mature borrowers who have been paying off their mortgage for a number of years.  Many of these borrowers are nearing the end of their mortgage deals only to find their path obstructed by strict new lending regulations imposed by mortgage lenders.  This situation isn’t expected to get any better, as house prices continue to plummet.

Many homeowners hoping to move house in the future find their way blocked as they are not even permitted to transfer their current deal to a new property.

Those facing difficulties include:

Middle-aged borrowers on interest-only mortgage deals

Homeowners whose property has decreased in value so much they are in negative equity and not able to raise a 10% deposit in order to move

Those who have experienced drops in income since they first took out their home loan

Anyone with even one missed payment on a credit or store card – you will be refused for any adverse credit these days as mortgage lenders are more wary of risk

Self-employed people who need to prove their income in the form of audited accounts

The Financial Services Authority (FSA) has imposed a number of changes in the way mortgage lenders approve mortgages.  This means homeowners and first-time buyers are going to face more detailed checks to analyse risk and whether they can meet the repayments each month.

These changes are plain to see if you have recently applied for a mortgage.  Whereas you could have a mortgage offer in the post the next day a few years ago, you will have to wait longer whilst checks are made and in many cases potential borrowers are turned down for the smallest reason.

Trade body the Council of Mortgage Lenders estimates 3.2 million of the six million people who took out a mortgage since 2005 would not be able to get a new deal because of these changes.

Many of these borrowers are being barred from taking advantage of the lowest interest rates ever recorded.

If that didn’t sound bad enough, those trapped in their mortgages or blocked from getting a mortgage, are having an adverse effect on the economy on a wider scale.  Because fewer people are able to get a mortgage, less homes are being sold causing the housing market and house prices to stagnate.  And because fewer people are moving, fewer are spending out on high value items such as new furniture, electrical items and kitchens.

Ray Boulger, senior manager at mortgage broker John Charcol, says: ‘Many people are struggling to find the mortgage deal they want. They are shocked when they find they no longer qualify for the mortgage they have already got.’

There are no up-todate estimates of the numbers of homeowners who may be in negative equity, though Lloyds Banking Group recently admitted it had 150,000 customers in that situation.

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