What is a mortgage prisoner and how do you become free?

‘Mortgage prisoner’ is a term that was rarely heard before the 2008 recession. Changes to mortgage lending practices, as a result of the financial crisis, are estimated to have created more than 200,000 mortgage prisoners in the UK. So, what exactly is a mortgage prisoner, and what can you do if you are one?

In this guide

1. What is a mortgage prisoner?
2. Am I a mortgage prisoner?
3. How do people become mortgage prisoners?
4. Mortgage prisoner review by FCA
5. What options are there for mortgage prisoners?
6. How do I get help and what should I do next?
7. Mortgage prisoners’ compensation
8. Mortgage prisoner latest news

What is a mortgage prisoner?

A mortgage prisoner is someone who is stuck with their current mortgage deal and unable to move to an alternative, more affordable product.

Am I a mortgage prisoner?

If the initial ‘tie-in’ period of your mortgage product has ended and you’ve been forced onto a higher interest rate because you’re unable to secure another fixed deal, it’s likely that you’re a mortgage prisoner.

How do people become mortgage prisoners?

Homeowners generally become mortgage prisoners where there is a change in the market that means their circumstances are no longer attractive to lenders.

After the 2008 financial crisis, lenders were forced to tighten their operating procedures. This included the introduction of tougher lending criteria. The idea was that these new rules would protect both banks and homeowners from a repeat of the financial devastation, but what about those who had been granted a mortgage under the old criteria? Before the financial crisis, homebuyers were often able to borrow up to 100% of the value of their new home.  When the new lending criteria were introduced, those who had borrowed 100% of the value of their property found themselves unable to secure a new mortgage deal when their initial fixed period ended. This was also the case for homeowners who bought at the height of the market and then experienced a drop in the value of their property, putting them into negative equity.

A substantial number of homeowners were also made mortgage prisoners when Northern Rock and Bradford and Bingley were nationalised following their collapse during the financial crisis. Once nationalised, they became inactive lenders and were therefore unable to offer alternative mortgage products to their customers. These customers find it difficult to secure mortgage lending elsewhere, as they’re unable to meet current lending criteria.

Mortgage prisoner review by FCA

In 2021, the government asked the Financial Conduct Authority (FCA) to provide and review data on mortgage prisoners in order to explore whether practical solutions could be found.

The review identified 195,000 homeowners who were stuck in mortgages with inactive mortgage lenders. Of those 195,000, the review identified that:

• 47,000 (24%) were up to date with their payments but unable to switch – even though it would benefit them to do so – because their current loan or circumstances are unattractive to lenders
• 34,000 (17%) were in a payment shortfall and 18,000 (1%) who were near the end of their mortgage term. People in these two categories wouldn’t be eligible to switch to a new, more affordable deal, even if they were with an active mortgage lender.
• 30,000 (15%) weren’t considered by the review to be mortgage prisoners because they were on a low interest rate product that meant there would be no financial benefit to them being able to switch to a different lender/mortgage product.
• 66,000 (34%) were found to be potentially eligible to switch with help from a consumer organisation or mortgage intermediary.

The review concluded that there is further work to do in both supporting mortgage prisoners and those facing financial difficulty, and to better understand challenges they face.

What options are there for mortgage prisoners?

The review encouraged lenders to consider amending or flexing their lending criteria where mortgage prisoners are close to meeting their risk criteria, so it’s always worth exploring whether you might be able to secure an alternative deal, even if you don’t meet the lender’s exact requirements.

Those mortgage prisoners who are not eligible to switch to a new lender or mortgage product are encouraged to work with debt advice agencies and other consumer organisations to maximise their chances of being accepted for alternative mortgage products in the future.

If your current mortgage product is placing you in significant financial difficulty, and you’re unlikely to be able to switch to an alternative product in the near future, you could consider selling your property to clear your mortgage. This would offer you a fresh start, but it is worth chatting through your personal circumstances with an independent financial adviser or advice charity before deciding whether this would be the right option for you.

How do I get help and what should I do next?

When you’re a mortgage prisoner help can be difficult to find, but there are a few places you can turn:

• Your current mortgage lender – your first call should always be to your current mortgage lender. If your current lender is inactive, they are likely to be limited in the support they can offer, but those with an active lender may be eligible for support.
• Independent financial adviser/mortgage broker – an independent financial adviser or mortgage broker should have ‘whole of market’ knowledge and therefore be able to advise you whether there may be other mortgage products that you could switch to. For example, a lender that uses manual underwriting is usually more flexible and able to consider different circumstances than one that uses automated underwriting.
• Citizens Advice – Citizens Advice can offer support to people in a wide range of circumstances, including those facing financial difficulty because of their mortgage.
• Debt charities – debt charities such as StepChange, National Debtline and CAP UK can help you to manage your finances and improve your chances of being able to switch to a different mortgage product in the future.

Mortgage prisoners’ compensation

Former Northern Rock and TSB mortgage customers have recently launched a legal claim, seeking financial compensation for the losses they have experienced as a result of being mortgage prisoners. If the lawsuit is successful, it could well pave the way for other mortgage prisoners to seek financial recompense.

Mortgage prisoners latest news

For the latest updates on mortgage prisoners in the UK you can contact UK Mortgage Prisoners (UKMP), a not-for profit organisation working to support those trapped in an expensive mortgage.