A mortgage prisoner is a homeowner who is unable to move to a better mortgage deal despite being up to date with their mortgage payments. Many of these borrowers find themselves trapped on expensive deals and cannot switch to more competitive products. This situation has persisted for many years and continues to affect tens of thousands of homeowners. This article explores what mortgage prisoners are, how they became trapped and what support is available for those seeking help or advice.
What is a mortgage prisoner?
A mortgage prisoner is someone unable to switch to a better mortgage deal even though they are current with their mortgage payments and fully capable of meeting their obligations. These homeowners are sometimes stuck in what is referred to as a ‘closed book’.
The term most commonly refers to borrowers who took out a mortgage before lending rules changed. When stricter affordability checks were introduced after the financial crisis of 2008, many of those with older mortgages were unable to satisfy the new criteria that prospective borrowers must meet today. Even if they could afford cheaper deals, lenders refused to offer them new products because they did not meet the newer, more stringent assessments. According to the Financial Conduct Authority (FCA), about 47,000 of the 195,000 mortgage holders in closed books in 2021 could, strictly speaking, be defined as mortgage prisoners, although some industry stakeholders contest this figure and believe that the real number could be significantly higher.
How did mortgage prisoners come about?
The phenomenon of being unable to switch mortgages stems from the collapse of lenders during and after the 2008 financial crisis. Large portfolios of mortgages were taken over by other firms or ended up in the hands of inactive lenders that no longer offer mortgage products to new customers, creating closed books. After the crisis, lending criteria were tightened to prevent another market breakdown. New applications since have required more rigorous checks of income, expenses and overall affordability.
As a result, borrowers who were eligible under older, more relaxed criteria cannot now pass the tougher checks imposed by lenders. Even if they have kept up with their mortgage payments, they are effectively ineligible for many new deals. The consequence is that there is a group of people paying high interest rates on outdated deals, often at standard variable rates (SVRs) that are much higher than current market-leading products, because they cannot secure remortgages with new lenders.
The implications of being a mortgage prisoner
Being unable to switch mortgage deals can leave homeowners paying substantially more than they would otherwise. Standard variable rates are often significantly higher than deals available in the wider market. Many mortgage prisoners have remained on such deals for years, increasing their cost of borrowing significantly. Moreover, the psychological stress of knowing that there is no clear route to affordable borrowing can also have an impact on well-being, as well as straining household finances.
What support is currently available?
While the situation for many mortgage prisoners remains challenging, some avenues of support or relief might be available.
1. Modified affordability assessments
One measure introduced by the Financial Conduct Authority allows some lenders to carry out a ‘modified affordability assessment.’ This offers potential flexibility in evaluating a borrower's ability to afford a new deal. However, this is at the discretion of the lender and is not guaranteed. Lenders may choose whether to adopt these modified checks and many still resist offering new products to mortgage prisoners. A borrower’s eligibility for such an assessment also depends on meeting certain basic qualifying criteria, including being up to date with mortgage payments and having enough home equity. Because this approach is optional for lenders, many mortgage prisoners may not be able to benefit from it.
2. Product transfers with current lender
Another option is to request a product transfer with the existing lender. A product transfer allows borrowers to switch to a new deal offered by the same lender without formal remortgaging. For some mortgage prisoners whose lender still offers deals to existing customers, this can be a route to lower costs. However, if the lender is inactive and is no longer offering new deals, this option is not available.
3. Switching to a lender within the same group
Some borrowers may also find opportunities by switching to a lender within the same financial group as their current inactive lender. In certain cases where a group of companies includes an active lender, a switch may be possible. However, these options are also subject to lender decision-making and can require professional assistance to identify. As with modified assessments, there is no obligation on lenders to accept mortgage prisoners simply because the rules may allow it.
4. Specialist brokers and advice
Seeking professional advice from specialist mortgage brokers experienced in these complex situations can help borrowers understand their options. A specialist broker may be able to identify deals or strategies that would not be apparent to someone acting by themselves. Citizens Advice, StepChange Debt Charity, and National Debtline are among organisations that also offer support, including advice on rights, negotiating with lenders and broader financial planning.
5. Legal action
In rare cases, legal action has been pursued by some mortgage prisoners where there may be grounds to challenge unfair charges or treatment by lenders. This is not a common or guaranteed route, and legal action carries risks and costs that should be carefully considered before proceeding.
Practical steps for mortgage prisoners
Mortgage prisoners can try the following practical steps to remedy their situation:
- Check eligibility for a modified affordability assessment. Ask lenders whether they participate in this option.
- Explore product transfer options with your current lender if it remains active in offering deals.
- Consult a specialist broker who may be able to access lenders or criteria not obvious to retail borrowers.
- Keep up to date with mortgage payments. Lenders are far more likely to consider applications from borrowers with a clean payment history.
- Seek free advice from charities such as Citizens Advice or StepChange.
Conclusion
Mortgage prisoners represent a group of homeowners who are trapped on expensive deals with little ability to move to cheaper mortgage products. They exist largely because of the changes to affordability criteria introduced after the financial crisis and the creation of closed mortgage books of inactive lenders.
Although some support mechanisms, such as modified affordability checks and product transfers, can help some mortgage prisoners find relief, there is no universal solution. Obtaining professional advice and exploring all options available may be worthwhile for anyone in this situation. The financial landscape for these borrowers remains challenging, but understanding the options and seeking help can potentially make a difference.
FAQs
Q. What exactly is a mortgage prisoner?
A. A mortgage prisoner is someone who cannot switch to a better mortgage deal due to lender inactivity or stricter affordability criteria even if they are up to date with their mortgage payments.
Q. How many mortgage prisoners are there?
A. Estimates vary, but the FCA suggested around 47,000 strict mortgage prisoners in 2021, although the figure may be higher.
Q. Can mortgage prisoners get a better deal?
A. Some mortgage prisoners may qualify for modified assessments or product transfers, but these options depend on lender willingness.
Q. What is a product transfer?
A. A product transfer is when a borrower switches to a new mortgage deal with their existing lender.
Q. Should mortgage prisoners seek specialist advice?
A. Yes, advice from specialist brokers and financial charities can help identify potential options and strategies.
Q. Will missing payments make someone a mortgage prisoner?
A. No, being in arrears does not make someone a mortgage prisoner, although it can limit options for switching.
Q. Are all people in closed-book mortgages mortgage prisoners?
A. No, only those unable to switch to new deals are considered mortgage prisoners under FCA definitions.
Q. Can legal action help mortgage prisoners?
A. Legal action may be an option in some cases, but it should be considered carefully with professional advice.
Q. Is there government intervention for mortgage prisoners?
A. The government and FCA have introduced measures such as modified assessments, but there is no definitive and universal regulatory fix yet.
Q. What should mortgage prisoners do first?
A. You should check if you qualify for modified assessments, consult a specialist broker and ensure your mortgage payments are up to date.
Additional sources:
https://www.moneysavingexpert.com/mortgages/mortgage-prisoners/
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