The House of Commons Library has issued a paper on the problems of mortgage prisoners, and what can be done to assist.
Who are mortgage prisoners?
“Mortgage prisoners” are people who are unable to switch mortgages, even if they are up to date with their payments.
Most became mortgage prisoners because their provider 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. But in doing so they had to maximise profit to the taxpayer. This meant that many mortgages were sold to investors who were not authorised or regulated. At the same time, regulators had imposed more stringent criteria on lenders to help prevent another financial crash. Many people whose circumstances had changed were unable to meet the new conditions. They were unable to move to other deals, even if they would pay less by doing so.
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 prisoners to switch to better deals. But it estimated that only 14,000 (less than 10%) of mortgage prisoners would be able to switch. Even that figure assumed that mortgage providers would take up the option. Inactive lenders and unregulated firms had to inform their mortgage-holders of possibilities.
But a few months later the coronavirus pandemic increased financial risks for all involved. The FCA expressed its disappointment at large lenders’ lack of response. Meanwhile it introduced wider measures to support all mortgage-holders through the pandemic. It also introduced interim measures that allowed some mortgage prisoners to extend deadlines for repayment.
Continuing frustration led to calls for more effective and imaginative responses. The consumer advocate Martin Lewis, the UK Mortgage Prisoner Action Group and the All-Party Parliamentary Group on Mortgage Prisoners highlighted the continuing situation. They argued that government action was at least partly responsible for the problem.
Parliamentary consideration in 2021
In early 2021 the House of Lords passed an amendment to the Financial Services Bill that would have required lenders to offer mortgage prisoners loans at no more than two percentage points above the base rate. But the Government rejected the amendment. It argued that it would be an unacceptable intervention into the mortgage market.
The Chief Executive of the FCA told the Treasury Committee that further reforms to help resolve the situation were largely up to Parliament.
The FCA’s 2021 report
In November 2021, the FCA published new data on mortgage prisoners and the wider issue. The report intended to provide fresh information to enable the Government and industry to consider further steps. Although it found that 190,000 mortgage-holders were affected, it only regarded 47,000 as mortgage prisoners. Some stakeholders have criticised the FCA’s assumptions and calculations.
The report found limited effectiveness of the FCA’s reforms to date, with only 200 mortgage-holders having benefited from the modified assessment criteria.