Mortgage prisoners

Who are mortgage prisoners?

Although definitions vary, generally speaking “mortgage prisoners” are people who are unable to switch mortgages to a better deal, even if they are up to date with their payments.

Most mortgage prisoners have a mortgage in a closed book of an inactive firm. This means that the mortgage is held with a lender that can no longer make mortgage contracts because they are not authorised to do so.

Why are there mortgage prisoners?

Many of these closed books were created when firms collapsed in or soon after the financial crisis of 2008. UK Asset Resolution (UKAR) took control of the mortgage books concerned and later sold them off.

At the same time, regulators and lenders imposed more stringent criteria on borrowing to help prevent another financial crash. Many people were unable to meet the new conditions. They were unable to move to other deals, even if they would pay less by doing so.

How many mortgage prisoners are there?

The Financial Conduct Authority (FCA) calculated that 250,000 mortgage holders were in closed books in 2019 and 195,000 in 2021. According to the FCA’s definition, though, only 47,000 of these were mortgage prisoners. They argue that others in the larger figure are either:

• free to move their mortgages but hadn’t done so,
• unlikely to benefit from doing so, or
• not up to date with their payments so would not in any case be eligible to move.

Some stakeholders have criticised the FCA’s assumptions and calculations. For instance, they argue that many people have only fallen into arrears because they have to pay much more than they might elsewhere.

Actions to help mortgage prisoners

In late 2019 the FCA introduced modified mortgage assessment criteria. It hoped that this would allow certain groups of mortgage-holders to switch to better deals. Inactive lenders and unregulated firms had to inform their mortgage-holders of possibilities. But in 2021, it found that the new rules had directly led to only about 200 switches.

Continuing frustration led to calls for more effective and imaginative responses. The consumer advocate Martin Lewis and the UK Mortgage Prisoner Action Group, among others, highlighted the continuing situation. They argued that government action had at least been partly responsible for creating the problem.

In 2023, a report undertaken by the London School of Economics said that the Government had made a surplus of £2.4 billion from the sale of the mortgage books. It offered costed proposals that it argued would meet Government criteria for helping to solve the problem.

Parliamentary consideration and Government response

In April 2021 the House of Lords agreed an amendment to the Financial Services Bill 2021 an amendment to the Financial Services Bill 2021 (pdf). It would have required lenders to offer mortgage prisoners loans at no more than two percentage points above the base rate. But the Commons voted to disagree to the amendment during ping pong. The Government argued that it would be an unacceptable and unfair intervention into the mortgage market. The Lords agreed to remove the amendment.

The Chief Executive of the FCA told the Treasury Committee in May 2021 that further reforms to help resolve the situation were up to Parliament.

In March 2023, Lord Sharkey, Liberal Democrat co-Chair of the Mortgage Prisoners All-Party Parliamentary Group, proposed an amendment to the Financial Services and Markets Bill 2022-23. It was identical to the one presented in 2021. He agreed to withdraw it when the Government promised to meet stakeholders to discuss the proposals in the LSE report. He presented and withdrew a similar amendment in June 2023 during report stage as the Treasury had still not responded. The Government said that it was continuing to consider the proposals.