What is a mortgage prisoner and is help available?

Mortgage prisoners are still suffering long after the 2008 financial crisis. Find out what a mortgage prisoner is and what help is available for them.

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The 2008 financial crisis might be a hazy memory for most of the population, but mortgage prisoners are still paying the price. We take a look at what the term ‘mortgage prisoner’ means and what you can do if you’re affected.  

What is a mortgage prisoner?

A mortgage prisoner is someone who cannot switch to a new mortgage deal. The predominant reason for this is that their lender was taken over by the government and no longer exists. These homeowners are also unable to move their mortgages because they don’t meet the stricter lending rules introduced after the financial crisis. 

The result is that these homeowners are quite literally trapped. Not only are they paying mortgages with relatively high interest rates, but there’s also little opportunity to find a more affordable alternative.


How many mortgage prisoners are there?

The Financial Conduct Authority (FCA) estimate there are around 250,000 mortgage prisoners in the UK. 

The FCA found that 57% of mortgage prisoners had an interest-only or mixed repayment mortgage. Nearly half (47%) owed more than £100,000. Figures also revealed that 63% of those trapped by their mortgages had a remaining term of more than 10 years. 

The FCA’s figures show that more than a quarter (35%) of mortgage prisoners were paying interest of less than 3%, meaning they’re unlikely to get a more competitive deal. However, a large proportion of prisoners were less fortunate. Around 17% were actually paying more than 5% interest on their mortgage rates. Everyone else was somewhere between 3% and 5%. 

Why is this important when the numbers affected are small?

In the grand scheme of things, the number of people trapped by mortgages is relatively small. But for those stuck paying more than they have to, with no end in sight, it’s a burden that can have knock-on effects.

That’s particularly so for anyone that cannot switch because of tougher lending rules. In some cases, the FCA discovered borrowers had a poor credit history at the time they took out their mortgage.

For borrowers that fall into this group, there’s a greater chance of becoming house poor and more financially vulnerable generally. This is particularly the case as food prices could also be set to rise. 

Crucially, although nearly all of those affected took out mortgages just before the 2008 crisis, the FCA warns that it’s a situation that could happen again for different reasons.


Is help available?

The FCA has amended lending rules to help anyone who couldn’t switch providers because of stricter post-2008 regulations. This also includes mortgage prisoners.

Lenders can now use a ‘modified affordability assessment’. This revised assessment is designed to make it easier for people to switch to a more affordable mortgage. 

To be considered under the modified rules, you should:

  • Have a current mortgage
  • Be up to date with your loan repayments and not have any missed payments in the last 12 months
  • Not want to borrow any more money other than what you need to finance your home
  • Be looking for a new deal for your existing home

On top of this, the FCA has asked lenders to check their books and contact affected customers.

If mortgage providers use the modified assessment, they must tell you how your affordability has been assessed. They should also let you know of any financial risk to you. You’ll need to bear in mind that lenders aren’t obliged to use this new framework.

For more information and guidance about these changes, head to the FCA’s website.  

Most recently, there was a move by the House of Lords to cap standard variable rates for mortgage prisoners as part of the Financial Services Act 2021. However, this was rejected by the House of Commons. So, while changes have been implemented to help those trapped, there’s still a way to go until everyone is free. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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