Ipswich Building Society launches deals aimed at freeing 'mortgage prisoners'
A building society has launched a new kind of mortgage deal which could help so-called 'mortgage prisoners' by making affordability checks less strict for borrowers trapped with their existing lender.
Ipswich Building Society is the first lender to launch a mortgage range specifically aimed at freeing borrowers who are stuck paying high interest rates. But rates aren't market-leading and only certain borrowers will be eligible for the deal – we've full analysis below.
It comes as the chief executive of regulator the Financial Conduct Authority (FCA) suggested that full regulation of mortgage lending might be needed to resolve the mortgage prisoner situation.
Thinking of remortgaging? See our full Remortgage Guide for how to find the right deal and potentially save £100s each month.
Martin: 'A welcome innovation – but not a panacea'
Martin Lewis, founder of MoneySavingExpert.com, said: "This is a welcome innovation by Ipswich. It isn't a panacea, but if it moves a few people into the mainstream mortgage market who are currently stuck, then the building society should be applauded.
"Far too many people in the UK are trapped in their existing mortgages. The worst cases are those with inactive or unregulated lenders, like many former Northern Rock customers – there it's the Government who has sold them down the river, and sadly I doubt the Ipswich product will help many of them. For that we need the Treasury to be willing to take action itself, and so far there's little sign of that."
What is a mortgage prisoner?
Mortgage prisoners are those who have been told they can't afford to remortgage because they don't meet strict borrowing criteria – even though they are keeping up with payments and want to switch to a cheaper rate.
It's estimated there are about 150,000 mortgage prisoners in total, most of whom are stuck on their lender's standard variable rate (SVR) mortgage, with an interest rate often higher than 5%.
How do Ipswich Building Society's new mortgages work?
Ipswich Building Society has launched six new 'like-for-like' remortgage deals, which crucially won't require borrowers to pass a 'stress test' when undergoing affordability checks.
This stress test normally involves lenders checking to see if borrowers could afford repayments in the event interest rates jumped to 6-7%, but in this case borrowers will only have to prove they can afford the cost of the mortgage, ie, the monthly repayments and interest they'll actually pay. This could be of particular benefit to borrowers who have struggled to pass income criteria in the past.
While loosening affordability criteria is part of the FCA's long-term strategy, Ipswich Building Society says that existing mortgage regulations allow it to avoid carrying out the more rigorous stress test – it claims this is because a clause in the Mortgage Conduct of Business rules allows lenders to bypass the stress test if the borrower is not changing the terms of their mortgage.
Non-mortgage prisoners can apply for the new deals too, and similarly will not be subject to a stress test. Here's what you need to know about the Ipswich Building Society deals:
- You must be an existing mortgage-holder with a good payments history to apply. The mortgages are only available to homeowners who have been with their current lender for at least two years, haven't missed a payment and aren't looking to borrow any additional money.
- You can choose from a range of two-year fixed and discount mortgages. These include a two-year discount at 2.55% and another at 2.5%, as well as a two-year fixed deal at 2.8% and one at 2.75%. These all come with a £199 arrangement fee and a £500 completion fee.
- Borrowers under 50 can remortgage their home at up to 80% loan-to-value (ie, you can borrow up to 80% of a property's value). Those who are 50 and over can borrow at up to 75% loan-to-value. The maximum loan available is £750,000.
- Homeowners who bought using shared ownership can also remortgage at up to 90% loan-to-value (capped at £500,000) of their share. On offer are a two-year fixed-rate deal at 3.15% and another at 3.25%. There are no fees with these deals.
I'm a mortgage prisoner – how do these deals compare?
If you believe you're a mortgage prisoner and are struggling to find a cheaper deal, it's important to weigh up your options. It isn't just about getting the best deal – it's about being accepted, and a broker can often help. See full help in our Remortgage Guide.
The rates offered by Ipswich – though much less than most lenders' SVRs – are far from market-leading. For example, its two-year fix at 2.75% (80% loan-to-value, or LTV) is beaten by a similar deal from The Nottingham at 1.6%. Similarly, Ipswich's 2.5% rate for two-year discount mortgages (again at 80% LTV) is more expensive than Furness's market-leading 1.55% rate.
It's also worth noting that not all mortgage prisoners will be eligible for Ipswich's new range – for example, you won't be able to apply if you have an LTV higher than 80%.
However, for those who are eligible and have been struggling to find a mortgage elsewhere, Ipswich's deals could be a new option to consider.
The FCA suggests full regulation of mortgage lending could be needed
In March, the FCA proposed that affordability rules should be relaxed to allow homeowners to switch to cheaper deals. But the FCA has also indicated this might not be a silver-bullet solution for all mortgage prisoners.
At a Treasury Committee hearing on Monday, FCA chief executive Andrew Bailey suggested that full regulation of mortgage lending might be a means of resolving the problem of mortgage prisoners. It came as he listened to suggestions that a Government fund should be set up to help those at risk of losing their homes.
"We have to take seriously extending the regulatory perimeter and saying that mortgage lending should be a regulated activity," he said.
"That would allow us to make rules in that space. I don't know of another solution to this, honestly."
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