MSE campaign win as West Brom Building Society launches new deals for mortgage prisoners
A building society is offering two new mortgages designed to make it easier for 'mortgage prisoners' to switch to a better deal, following five years of MoneySavingExpert.com campaigning on the issue.
West Brom Building Society has launched the pair of two-year fixed mortgage deals alongside a new affordability assessment, making them accessible to homeowners who may struggle to access mortgages elsewhere.
The deals are available through the building society's mortgage advisers or its partner Mortgage Force, and coincide with the introduction of a new mortgage prisoners' help resource on the website of Government body the Money and Pensions Service.
Mortgage prisoners are those who are unable to get cheaper deals with other lenders because they don't meet strict borrowing criteria, even though they'd often be paying less if they switched away from their provider.
West Brom is not the first to offer products specifically for mortgage prisoners – Ipswich Building Society launched its own product last year – but it's the first since the financial regulator introduced new rules allowing lenders to use more proportionate affordability assessments for mortgage prisoners who meet certain criteria. These are rules that MSE was instrumental in campaigning for.
If you think you might be eligible to remortgage, see our full Remortgage Guide for how to find the right deal and potentially save £100s each month.
Martin: 'This is a totemic victory'
Martin Lewis, who is the founder of MoneySavingExpert.com and currently funding new research into mortgage prisoner remedies by the London School of Economics, said: "This isn't the huge scale market shake-up that is needed, but it is a totemic victory, showing that it's possible to start to open up the mortgage market and release some prisoners. The West Brom needs to be applauded for its move, and I'd call on others to follow it.
"To those who are locked into a mortgage: investigate whether these would be available and suitable for you, both as deals in their own right, but also because, by moving away from an inactive lender, remortgaging next time should be easier, opening you up to a more competitive marketplace.
"Yet this type of solution is only likely to help 5% of the estimated 250,000 prisoners in the marketplace. We need action from the Government to help the rest. The wellbeing impact on people's lives from being locked in an expensive mortgage that gradually erodes their finances and freedom to move is devastating. The banks were bailed out of the financial crisis back in 2007 – it's time the banks' victims were too."
What are mortgage prisoners?
So-called mortgage prisoners are homeowners who are unable to remortgage to a cheaper deal with another lender because they don't meet strict borrowing criteria brought in after the 2008 financial crash – even though they're generally keeping up with repayments and would often be paying less if they switched. Many have told us of the emotional and physical impact of this situation.
MoneySavingExpert.com has been fighting mortgage prisoners' corner since 2015, and last year regulator the Financial Conduct Authority (FCA) announced relaxed affordability checks for new customers who meet certain criteria and want to remortgage. But while it is working to do what it can within its authority, earlier this year it said lenders haven't been generally interested in helping mortgage prisoners switch with the solution it's been able to offer.
In July, it proposed a rule change for customers with 'closed book' mortgages – ie, those borrowing from a firm that is no longer lending to new customers – allowing them to switch to a mortgage deal with a firm that is part of the same financial group as their current lender, without undergoing the usual rigorous affordability tests. But as with other rule changes, the FCA can't force lenders to apply the new rules.
However, most recently, MSE's campaign has taken the shape of Martin funding research by the London School of Economics into policy solutions for all mortgage prisoners, including the majority who the FCA's policies won't help.
How does the new affordability assessment work?
Under the new FCA rules, lenders can use a 'modified affordability assessment' when dealing with mortgage applications.
This means lenders don't need to apply income and spending assessments. And crucially, they also don't need to consider the effect of future interest rates – known as stress testing. This normally involves lenders checking to see if borrowers could afford repayments in the event interest rates jumped to 6-7%, rather than just making sure borrowers can afford the repayments they'll actually pay.
West Brom Building Society says it will assess individual borrowers to see if they qualify for the new products under this affordability assessment.
Who will be eligible for the new mortgage products?
West Brom Building Society says it can offer its 'modified affordability assessment' as part of an application if you meet all the following criteria:
- Your mortgage is with an inactive lender (a firm that doesn't offer other mortgage products), meaning you don't have alternative options to switch.
- You're up to date with your mortgage payments and have a good payment history, including no arrears or missed payments over the last 12 months.
- You're looking to remortgage to a new deal on your current property, which is more affordable than your current product – and you're not looking to borrow more (except to finance any fees for the new mortgage or to consolidate a secured loan).
The FCA has a detailed definition of what is a considered a more affordable mortgage (for chapter and verse, see p10 of its 2019 policy statement) but in general terms the cost including fees, interest rates and monthly payments must be lower.
- Your loan-to-value is up to 75%. The building society has launched two products – one for interest-only mortgages at up to 60% loan-to-value, and one for repayment mortgages at up to 75% loan-to-value. Loan-to-value refers to the proportion of your home's value that you're borrowing as a mortgage.
The mortgages come with a £499 completion fee, a free valuation, and assisted legal fees.
It is worth bearing in mind that West Brom is a medium-sized building society and is only offering a limited number of these products. The FCA has said, however, that it is working with industry to see more switching options like this in the coming months.
How do the rates compare?
Both of West Brom Building Society's new products are two-year fixed mortgages with interest rates of 1.84%. However West Brom hasn't published what the fees associated with the mortgages are - we're checking this and will update this story as soon as we hear back.
While fees can have a big impact, the interest rate is much lower than many lenders' standard variable rates, which typically charge about 4% interest, and while not market-leading – for example, Lloyds Bank offers a two-year fix with 75% loan-to-value at 1.5% – by definition mortgage prisoners are unable to access market-leading deals. So for mortgage prisoners stuck on pricey products this could be a very strong option to consider.
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