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MPs launch inquiry to help free ‘mortgage prisoners’

Thousands of homeowners are trapped in their mortgage deals

A cross-party group of MPs has launched an inquiry into finding fairness for ‘mortgage prisoners’ – people who cannot remortgage and are stuck paying expensive interest rates. 

The All-Party Parliamentary Group (APPG) on Mortgage Prisoners has put out a call for evidence, and plans to hold a backbench debate on the subject in parliament today (Thursday 6 June).

This comes after the Financial Conduct Authority (FCA) announced proposals to help mortgage prisoners early last month.

Here, we look at the scale of the mortgage prisoner epidemic, and what can be done to set them free.


What is a mortgage prisoner?

A mortgage prisoner is someone trapped in a mortgage deal, unable to remortgage to a new one, even if they have made all of their repayments on time.

You’ll only find out you’re a mortgage prisoner when you get rejected for a remortgaging deal. So, if you’ve never tried to remortgage, you could be one yourself.

Based on detailed data from 2016, the Financial Conduct Authority estimates there are up to 150,000 mortgage prisoners in the country, all of whom could benefit from switching.

In most cases, homeowners become trapped because they were given mortgages under relatively relaxed pre-2008 lending regulations. After the financial crisis, the FCA made these regulations much stricter in order to avoid another crash.

Now, thousands of people who were deemed eligible for mortgages before the financial crisis do not meet lenders’ more stringent affordability criteria.

For example, someone who was approved for a £500-a-month mortgage in 2007 may now be told they can’t afford a mortgage of £400-a-month under the new rules, even if they’ve made every £500 payment for over ten years.

Unable to switch to a better deal, these borrowers will generally be stuck paying the lender’s standard variable rate (SVR), which could be costing them thousands per year.

Some of the most vulnerable mortgage prisoners are interest-only mortgage customers. If they are unable to remortgage when their deals come to term, they could face paying back the entire value of their loan when it matures.

How will the inquiry help?

The APPG’s inquiry has only just launched, so it won’t draw any conclusions until it’s made more headway.

However, the group has made its aims quite clear. It intends to:

  • review the FCA’s recent proposals in time to contribute to the consultation which ends later this month.
  • check the proposals go far enough to help all mortgage prisoners.
  • see if protections for vulnerable customers need to be strengthened.

Seema Malhotra MP, co-chair of the APPG on Mortgage Prisoners said: ‘Mortgage prisoners have paid thousands of pounds more in interest and some face losing their homes, leading to stress, ill-health, depression, relationship breakdown and damage to their businesses and credit records.

‘More than anything, they told us how frustrating it is to be paying 5% or 6% and be told that you cannot “afford” a mortgage which would halve your interest rate and reduce your mortgage payment significantly.

‘The APPG will be examining what changes need to be introduced by lenders, the government, UK Asset Resolution, a UK financial services holding company and the FCA to ensure that all mortgage prisoners are treated fairly and get a fair deal.’

If you are a mortgage prisoner, the APPG is interesting in hearing about your situation. You can contact them via email at APPGmortgageprisoners@gmail.com.

How much could you save by switching?

Anyone, not just mortgage prisoners, could benefit from remortgaging to a new deal if they are on their lender’s standard variable rate (SVR). Yet the FCA estimates that there are around 800,000 homeowners who haven’t switched to a cheaper mortgage, even though they could.

When Which? carried out research on remortgaging in 2018, we found that homeowners on SVRs could save more than £300 a month if they switched to an equivalent deal – that’s almost £4,000 a year.

This is because mortgage deals tend to have cheaper cheaper introductory offers, which will almost always be a lower rate than the lender’s SVR.

Plus, if you’ve been paying off your mortgage for a while, you’ll likely have built up more equity (the portion of your home that you own mortgage-free). This will allow you to take out a new mortgage at a lower loan-to-value ratio (LTV). And lower LTVs often mean lower interest rates.

Get expert advice on finding a new mortgage deal

Whether or not you are trapped in your deal, you could stand to benefit from speaking to an independent mortgage adviser about whether you could switch, and how much you could save by doing so.

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