Your feedback is essential to help us improve - click here to take our 3 minute survey.

The UK has 50,000 mortgage prisoners: are you one of them?

The UK has 50,000 mortgage prisoners: are you one of them?
Image source: Getty Images

The long-awaited ‘Mortgage Prisoner Review’ from the Financial Conduct Authority (FCA) has revealed the UK officially has 47,000 mortgage prisoners. This means nearly 50,000 Brits are unable to switch to a cheaper mortgage due to stricter affordability checks.

The UK’s ongoing Mortgage Prisoner situation has attracted growing attention in recent years, with some consumer groups campaigning for more help for affected homeowners.

So how can you determine whether you’re a mortgage prisoner? And why do some say the FCA’s official 47,000 figure is inaccurate? Let’s take a look.

What is a mortgage prisoner?

A mortgage prisoner is a homeowner who is trapped on an expensive mortgage and unable to switch to a cheaper deal. Many mortgage prisoners took out their mortgages prior to the 2008 financial crash when lending rules were far more lenient.

How can you tell if you’re a mortgage prisoner?

You may be a mortgage prisoner if all of the following apply:

  • You’re currently paying a mortgage
  • You have a good repayment history
  • You’re unable to switch to a cheaper deal

Many existing mortgage prisoners find themselves in their current situation due to stricter lending affordability rules introduced in 2014.

As a result of the changes, those who passed their lender’s affordability checks prior to 2014, may not pass the updated criteria when they wish to remortgage. Because of this, some lenders refuse new mortgages to existing mortgage holders. This can happen even if a homeowner has a stellar repayment record.

Being unable to switch to a cheaper deal can be hugely frustrating. This often isn’t helped by the fact that open market mortgage rates are currently at rock-bottom levels.

What is being done to help mortgage prisoners?

Not enough is being done, according to many consumer groups. That being said, it’s worth knowing that the FCA has introduced some provisions that allow lenders to carry out a ‘modified affordability assessment’. This gives lenders the power to waive some of the new stricter checks, meaning some prisoners can move to a cheaper deal.

However, lenders are under no obligation to undertake this assessment, which many feel is unfair. Often, lenders will avoid carrying out this assessment if mortgage holders have little equity in their homes.

What did the Mortgage Prisoner Review reveal?

The FCA’s Mortgage Prisoner Review says 47,000 homeowners can classify themselves as mortgage prisoners. However, the report has come under fire, given that the data ignored 34,000 people behind on their mortgage payments.

The FCA justified this by saying these mortgage holders wouldn’t be able to switch deals even if lending rules were relaxed. However, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, suggests this is poor reasoning given that many prisoners are behind on their repayments because they are unable to switch.

She explains: “Almost 50,000 mortgage prisoners are still stranded on horrendously expensive mortgages, according to FCA figures, but the real number of people trapped is closer to 100,000, and they face a nightmare Catch 22.

“Prisoners are trapped in a vicious circle. They’re often paying a far higher interest rate than everyone else, and while the average rate of 4.3% is bad enough, 3% of them are paying over 5%.”

Coles goes on to explain that some mortgage prisoners face an even tougher challenge to chop away at their balance. She explains: “If every penny is going on your existing mortgage, it’s harder to pay down a big outstanding interest-only balance.

“Likewise, if it absorbs a major chunk of your income, you run the risk of missing payments. And both of these things make you more likely to remain a prisoner for even longer.”

Coles also added that age could also be a factor for many being unable to switch. She explains: “Almost twice as many people with inactive lenders are over the age of 56 (35.3%), and almost four times as many are aged 76 or over (2.1%).

“Having big outstanding balances at a later age makes the task of finding an alternative to switch to even harder.”

Are you looking for a mortgage?

If you’re fortunate not to be a mortgage prisoner yourself, do take a look at The Motley Fool’s top-rated mortgage deals.

Paying credit card interest? Time to switch to a 0% balance transfer card.

If you can’t afford to clear your credit card balance at the moment and are paying monthly interest, then check to see if you can shift that debt to a new credit card with a long 0% interest free balance transfer period. It could save you money.

By transferring the balance of any existing card (or cards) to a new 0% card, you could be debt-free more quickly – since your repayments will go entirely towards clearing the balance of the debt you owe, and not on interest charges.

Discover our top-rated picks for 0% balance transfer credit cards here and check your eligibility before you apply in just a few minutes – it’s free and won’t affect your credit score.

Was this article helpful?

Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.