Mortgage Prisoner Review

Read the review[1] 

We understand the difficult circumstances that mortgage prisoners are in. That’s why the Government asked us to provide data to help them consider whether there are practical and proportionate solutions to help these borrowers. Our review provides this data.

It sets out the loan and borrower characteristics of the wider population of 195,000 mortgages in closed books with inactive firms. The review includes our estimate of the number of these borrowers who can and cannot switch and the number of mortgage prisoners. 

Of the 195,000 borrowers who have mortgages in closed books with inactive firms, we estimate that there are:

• 66,000 who may be able to switch. Where borrowers have not yet tried to switch, consumer organisations or a mortgage intermediary may be able to help them assess whether they can save money, or otherwise benefit, by switching. We have put together some case studies[2] that may help.
• 30,000 who can’t switch but are unlikely to benefit from switching. They are up to date with payments but can’t switch because of their loan and/or borrower characteristics. However, the interest rate they’re on means they’d be unlikely to save money from switching- so they aren’t mortgage prisoners.
• 47,000 who are mortgage prisoners. Despite being up to date with payments, they cannot switch when it might benefit them to do so, because they have loan and/or borrower characteristics that are outside current lender appetite.
• 34,000 who are in payment shortfall, and 18,000 who are near term. These borrowers wouldn’t be able to switch to a new deal, even if they were with an active lender. 

We have also reviewed the effectiveness of our regulatory interventions to remove regulatory barriers to switching. Demand from borrowers and supply from lenders has been low. A small number of borrowers have been able to switch from an inactive lender to a new deal with an active lender.

We hope that more mortgage prisoners will be able to switch their mortgage. We encourage lenders to consider if they can amend their lending criteria to lend to mortgage prisoners who are close to their risk appetite. We are publishing data so lenders can consider whether they can adapt their lending criteria (or use the flexibility in our rules) to lend to these borrowers. 

Other mortgage prisoners who continue to lie outside the risk appetite of lenders may be able to take steps, with the help of consumer organisations or a debt advice charity, to improve their chances of switching to a better deal in the longer term.  

The Government and industry will use this review to consider if there are further practical and proportionate solutions for mortgage prisoners. We will continue to support them to do this and we will focus on those areas in the market where we identify the greatest harm which could affect mortgage prisoners and other borrowers. In particular:

• ensuring firms provide all mortgage borrowers (in both closed and active books) with the support they need when they get into financial difficulty
• carrying out work to further understand the issues facing borrowers (in both closed and active books) who have interest only or part repayment mortgages
• supervising and enforcing our guidance for firms on the fair treatment of vulnerable customers, to help ensure fair outcomes for customers with characteristics of vulnerability

Notes to editors

1. Mortgage prisoners are borrowers who are up to date with payments and cannot switch when it might benefit them to do so. This is because they have loan and/or borrower characteristics that are outside current lender appetite.
2. Most of the difficulties in switching facing mortgage prisoners can be traced back to the major changes to lending practices during and immediately after the 2008 financial crisis. This resulted in a number of borrowers who took out their mortgage in 2008, or earlier, finding that their loan and borrower characteristics no longer meet the risk appetite of lenders despite being up to date with payments. Borrowers can find they are unable to switch to a new mortgage deal because their personal circumstances have changed since they took out their mortgage or last switched, perhaps because of a significant life event such as losing their job. 
3. An inactive firm is either a lender that no longer lends to new customers (an inactive lender) or they are not a lender and may not be regulated by the FCA.