Tens of thousands of people in the UK could be ‘mortgage prisoners’.
What Are Mortgage Prisoners?
“Mortgages prisoners are borrowers that are up to date with their mortgage payments but who are unable to switch mortgage providers because they have a mortgage loan or borrower characteristics that are outside of current lender appetites.” – UK Finance
Many of these borrowers have found themselves in this situation due to changes to mortgage lending practices during and immediately after the 2008 financial crisis.
Mortgage affordability rules were tightened after the financial crisis, meaning homeowners who were granted mortgages under the new rules no longer passed the eligibility criteria on the news ones, leading to them becoming stuck on uncompetitive rates.
Many of these mortgage prisoners are trapped on expensive mortgage deals with inactive lenders who do not provide new mortgage products to switch to, and are also unable to change lenders due to not passing the current affordability tests.
How Many People Are Mortgage Prisoners?
In 2021, the Financial Conduct Authority (FCA) found that 195,000 people have mortgages in closed books with inactive firms. They estimated that out of these there are 47,000 who are mortgage prisoners, meaning despite being up to date with payments, they cannot switch when it might benefit them to do so, due to having loan or borrower characteristics that current lenders do not want. They argued that outside of this 47,000, the rest are either:
- Free to move their mortgage who have not done so
- Unlikely to benefit from moving their mortgage
- In payment shortfall or near term, meaning they wouldn’t be able to switch to a new deal even if they were currently with an active lender
“We hope that more mortgage prisoners will be able to switch their mortgage. We encourage lenders to consider if they can amend their lending criteria to lend to mortgage prisoners who are close to their risk appetite. We are publishing data so lenders can consider whether they can adapt their lending criteria (or use the flexibility in our rules) to lend to these borrowers.
Other mortgage prisoners who continue to lie outside the risk appetite of lenders may be able to take steps, with the help of consumer organisations or a debt advice charity, to improve their chances of switching to a better deal in the longer term.” – FCA
What Should I Do?
MoneySavingExpert.com has a guide for some options that may be available to you if you are a mortgage prisoner. This includes:
-Switching to a new lender that is willing to carry out a modified affordability assessment
-Switch to a cheaper deal with your current lender if they are currently offering new deals, and it is a like-for-like mortgage
-Switch to a cheaper deal with a different lender who is still part of the same group as your current lender
-Consider taking legal action, if you are eligible
You can read more about each of these options on their website.