News emerged recently that Tesco Mortgages and Which? Mortgage Advisers were both ceasing their mortgage business and in doing saw the worry that even more mortgage prisoners would be created.
Whilst Which? Mortgage Advisers are a broker and not lenders themselves and so cannot create more home loan prisoners, when Tesco Mortgages announced it had stopped new mortgage lending and was planning to sell its £3.7bn home loans portfolio with some 23,000 active customers, the worry was that it if Tesco Mortgages were sold to a non active lender that their 23,000 customers could find themselves trapped in their current product with no means of rate switching without making a new application with a new lender. Thus becoming a ‘prisoner’ of their current home loan.
The term ‘mortgage prisoner’ has become a growing concern since the credit crunch and the rapid growth in the secondary mortgage market, were loan books are bought and sold, often ending up in the hands of specialist investment groups and not with active lenders.
A home owner can take out a mortgage and purchase their home perhaps on a fixed rate, thinking they have some financial stability only to find that their mortgage has been sold to a non lender and that they are then on an uncompetitive (SVR) Standard Variable Rate.
If the borrower has maintained their mortgage payments without incident, not made any late payments to any other creditors and all other things are equal such as income and expenditure then great, that homeowner should be able to move to another lender quite easily.
In such a circumstance a Whole of Market Broker like ourselves can choose from dozens of options available to the homeowner.
However, what if in the last couple of years prior to the lenders loan book being sold that there has been missed payments and arrears to the mortgage or other lending? What if there has been a change in affordability or employment? What if the house value has actually decreased and pushed the loan to valuation higher leaving less (attractive) equity for a new lender to consider?
All of these things can and do happen and we see them every single day.
Change of Circumstances creating Mortgage Prisoners
If Tesco Mortgages are sold to a non lender then if any of their 23,000 customers has had a negative change in their circumstances in the last couple of years then it is very likely that they may have difficulty getting lending approved by another lender. But, if Tesco Mortgages were still active, those customers with a negative change in circumstances could still get a rate switch and benefit from a new fixed rate from Tesco. With no Tesco, the homeowner is forced to head back out to the market and find a new deal or be stuck with the loan and rate they have now, which may not represent a good deal.
What Can Tesco Mortgage Customers Do?
Whilst Tesco have not ruled out selling to a non lender the Tesco Mortgage book is still up for sale so whilst the outcome is not certain it is always a good idea to plan ahead.
If your circumstances have changed for better or for worse the best advice is to get out in-front of the problem, understand it and review your options.
As a Whole of Market Broker and a Specialist Bad Credit Mortgage Broker we are in a perfect position to look at your current circumstances and give you an open and honest appraisal of your options going forward so that you can either avoid becoming a Tesco Mortgage Prisoner or if your circumstances have improved in the last couple of years, take advantage of the opportunity to find a new deal that reflects your improved circumstances.
Give Us a Call for a Mortgage Review