I'm a mortgage prisoner - what can I do?
100,000s unfairly trapped, yet there's help for some (but not all)
Mortgage prisoners are homeowners trapped on pricey mortgage deals, unable to switch to cheaper ones mainly because they don't pass current strict affordability tests. Typically, they had taken out a mortgage with lenders before the 2008 financial crash when lending rules were more relaxed. This guide helps you check if you're a mortgage prisoner, and if so, if there's anything you can do about it.
This is the first incarnation of this guide. This is a complex area so the guide is necessarily a long read to cover all the angles. Please let us know if there's something you'd like us to add or change, plus tell us your experiences in the Mortgage Prisoners: what to do if you're trapped discussion.
After the financial crash just over a decade ago, mortgage lending rules were tightened. Suddenly homeowners, who successfully applied for and were granted mortgages under the old rules, now didn't pass under the new ones. So when they tried to switch to cheaper deals with new lenders the new rules prevented them from doing so. As a result, many are stuck on uncompetitive rates and are essentially being told: "you can't afford a cheaper deal".
Not sure if you're a mortgage prisoner? Two questions to ask:
1. Did you purchase your home, or remortgaged it before the introduction of the stricter affordability rules in 2014?
2. Have you been told you can't switch to a more competitive, cheaper deal?
If the answer to both of these questions is 'yes', then you're likely to be a mortgage prisoner.
I am trapped in my home that has unsafe cladding - am I a mortgage prisoner?
Many people are currently living in flats with potentially unsafe cladding, which have become "unmortgageable". This is a huge problem that also needs rapid attention in order to fix it.
However, for the purposes of this guide we are addressing homeowners who cannot switch to a new mortgage because they don't meet the more stricter affordability requirements.
If you've been affected by unsafe cladding, the local government association has released a comprehensive guide for councils on what the issues are and what help is available. There are also numerous action groups including the UK Cladding Action Group, which is a nationwide group campaigning to help those living in unsafe homes.
We need to be frank here. At the moment, for the vast majority of mortgage prisoners there's currently NO HELP. And that's why we have been campaigning for help. The Financial Conduct Authority (FCA) estimates that only about 14,000 mortgage prisoners can be helped, and we believe there are around 250,000 mortgage prisoners, so that's a little more than 5%.
BUT not every mortgage prisoner is in the same situation. Depending on what type of lender you have, you might have more or fewer options.
Here are the three available options and how to pinpoint if you're one of the lucky few who can do something NOW:
New provisions (with criteria set by the FCA) now allow lenders to carry out a 'modified affordability assessment'. This means lenders are allowed to waive some of the strict checks - if they choose to. In other words, some mortgage prisoners will be able to finally switch to a new lender. If you're a mortgage prisoner you'll have received a letter towards the end of 2020 telling you about this option and that it might be a route you can take.
Who can get it? This option is theoretically open to all, BUT because it's the lender's choice whether it uses it, many mortgage prisoners - especially those in negative equity, with interest-only deals or very little equity in their homes - will find they won't get it.
Here's the criteria lenders typically use to decide whether they will accept your mortgage application (it varies from lender to lender, but some of it is the same everywhere because it’s set by the regulator):
- Minimum of five years remaining on the mortgage.
- Remaining mortgage sum of at least £50,000.
- Up to date with your mortgage payments, and have been for at least 12 months.
- Do not want to borrow more.
- A maximum LTV (loan to value) typically of no more than 75%.
- A clear repayment plan if you are on, and want to remain on, an interest-only mortgage.
How do I do it? The best way is to get advice from a broker as they will be able to assess your chances using your specific circumstances. Our Cheap Mortgage Finding guide helps you find the right broker for you. The Money and Pensions Service has also published a list of brokers who have said they will help mortgage prisoners.
Need to know: To find out whether or not you might be accepted under the new rules, you can try the Money Advice Service's mortgage prisoner eligibility tool.
A handful of lenders have officially announced that they will have products to help mortgage prisoners. Other lenders may also offer deals to mortgage prisoners, but on a more "ad hoc" basis. A broker can help you identify which lender might be the best fit for you.
Lender Rate Only available via a broker Max LTV West Brom 2.04% No, you can apply directly
Max 60% LTV for interest-only
max 75% LTV repayment
Natwest Access to ALL Natwest's remortgage deals Yes No max LTV confirmed Halifax Access to ALL Halifax's remortgage deals Yes Max 75% LTV Santander Access to ALL Santander's remortgage deals Yes Max 70% LTV interest-only, max 90% LTV repayment
In 2018, 67 lenders - representing nearly 95% of the UK’s mortgage market - agreed to help existing borrowers who were on standard variable rates and were up-to-date with repayments but were unable to move to a cheaper deal provided by their lender.
This means if your mortgage is with a lender that offers new mortgages you can apply to switch to another deal with your same lender - this is called a 'product transfer'. The key caveat is that it has to be a like-for-like mortgage, ie, no extra borrowing and on the same property.
Who can get it? You can apply for a product transfer if your lender currently offers new mortgages to homebuyers. You'll need to be up to date with your repayments, and not after increased borrowing or a change of property.
How do I do it? The first thing to do is ask if your lender is "active in the mortgage market". Then speak to your lender about switching to a cheaper deal via a product transfer.
A broker can also advise you on your individual circumstances - even if you can switch to a cheaper deal via a product transfer, switching lenders might be even better for you. Read our Cheap Mortgage Finding guide for help how to find a broker. The Money and Pensions Service has also published a list of brokers who have said they will help mortgage prisoners
Only around one in 10 borrowers who could move to a new deal with their existing lender (and would benefit from moving) have actually done so according to UK Finance. If this is you, you should act NOW.
3. Switch to a cheaper deal with lender that is part of same group as your lender
Last year the FCA introduced some new regulations which could help some mortgage prisoners with inactive lenders to switch to a cheaper deal with an active lender that is part of the same financial group as their existing lender.
Who can get it? Frustratingly, there is no simple way for you to check if your lender is part of a wider group. Smaller lenders are bought up by bigger institutions all the time. This is an instance where speaking to a broker might help clear things up.
How do I do it? The first thing to do is find a broker who can help you work out if your lender is part of a wider group, plus they will be able to advise you on your specific circumstances. Read our Cheap Mortgage Finding guide for help how to find a broker. The Money and Pensions Service has also published a list of brokers who have said they will help mortgage prisoners
Need to know: Unfortunately, while the rules essentially allow lenders to be more flexible if they want to, the regulator cannot force them to accept customers.
We've already heard some success stories
Some mortgage prisoners are starting to escape to much cheaper deals thanks – and one of the first homeowners to do so has told us he's saving almost £500 each month as a result.
Maurice Latimer (pictured), transferred to a new mortgage with West Brom and slashed his interest rate from 4.59% to just 1.84%, on a two-year fixed-rate interest-only deal. As a result, his monthly payments were halved overnight, from £886 to just £401 a month – a massive £485/month saving.
Maurice, who's spoken to MoneySavingExpert.com founder Martin Lewis about mortgage prisoner policy and is part of the UK Mortgage Prisoners Facebook group, took out an interest-only mortgage with Northern Rock in 2001, read the full story here.
Getting a new mortgage deal essentially involves lenders choosing whether or not they'd like you as a customer. There are some circumstances that are likely to reduce your chances. Here are some scenarios that could scupper your chances to get a better deal:
1. I'm on an interest-only deal
If you’re on an interest-only mortgage, new lenders will expect you to have a repayment plan (and proof of it) to clear the outstanding mortgage at the end of its term. Without this, it is very unlikely that you will be able to benefit from new switching options.
What can I do to improve my chances? Moving from an interest-only deal to a repayment deal is something to consider. The ability to do so depends on your age (moving to repayment deals can add many years onto the mortgage's term, so a 30 year old is more likely to be approved than someone already in their 50s or 60s), and the remaining length of your current term - the nearer your term's end, the trickier it is.
Some lenders may be able to offer options that include switching part of your mortgage to repayment, or by arranging to make overpayments to reduce the overall debt. These will increase your monthly payments but you'll be chipping away at the overall debt which could make it easier to remortgage in the future. A broker can help you identify if this is right - or possible - for you.
2. My home is worth less than I paid for it
If the value of your home has gone down since you purchased it, you could be in what is called "negative equity". This means that the amount you owe to the bank is more than the current value of your home.
Negative equity might reduce other lenders' appetite to offer you a deal but it should not close the door on a product transfer with your current lender if one is available. So this is worth bearing in mind if you are with an active lender or an inactive lender that is part of an active group - though the rates may not be as competitive as those not in negative equity.
This has been a particular issue for homeowners in Northern Ireland. A large number of interest-only mortgages awarded in Northern Ireland meant that after the property crash in 2007/8 a lot of homeowners found themselves in negative equity.
What can I do to improve my chances? If you're in this situation, it is often helpful to speak to a broker who will advise you on your individual circumstances.
3. I'm not up to date with payments
The harsh reality is that to secure a new affordable rate, lenders need to see evidence of a good credit history, and the way to show this is a minimum of 12 months' worth of on-time payments.
What can I do to improve my chances? You MUST do everything you can to get up to date with your payments and remain out of arrears for 12 months before you can start looking at options.
4. I have unsecured debt bundled with my mortgage
Rough estimates suggest there are at least 17,000 mortgage prisoners who have unsecured debt bundled in with their mortgage. These are called "Together Loans" and were offered by Northern Rock. These loans meant that sometimes customers had borrowed up to 125% of their property's value.
Crucially both these loans were at the same rate and were contractually linked. Changing lenders to a new cheaper mortgage breaks the link triggering a large loan increase on the rate.
Modified affordability assessment allows unsecured loans to be consolidated but many "Together" customers do not qualify.
What can I do to improve my chances? The best advice is to approach a broker who has expertise in debt consolidation. If you’re not sure where to start you can approach StepChange, which has a subsidiary firm “Stepchange Financial Solutions” that has mortgage advisors with expertise in debt consolidation.
5. My interest rate is below 4%
While you may fit many of the criteria of mortgage prisoners, and indeed be stuck on your current rate and to your current lender, if you are currently paying less than 4%, particularly if you're credit impaired - or don't have a repayment strategy if you're interest only - it could be difficult to switch to a lower rate and actually save money.
While rates change all the time, unless you have a lot of equity in your home, the best fixed rate deals for those with impaired credit (on the minor end) typically hover around 4%. So if your rate is already below this, it is unlikely you will get a better one.
What can I do to improve my chances? Speaking to a broker who knows all about mortgage prisoners and who can look at your individual situation, can help you get a clear picture if finding a better rate would be possible and likely for you.
Most mortgage prisoners are paying their lender's standard variable rate (SVR). This is the rate you end up on if you don't remortgage after your introductory or fixed-rate deal finishes.
The bulk of mortgage prisoners are also "closed book" customers. This means their lender either cannot or chooses not to offer new mortgage products. The average closed-book SVR was 4.67%, according to the latest available figs from June 2020. Meanwhile, the average two-year fixed-rate in January 2021 across all loan-to-values was roughly half that at 2.43%, according to MoneyFacts.
As a result a mortgage prisoner can end up paying £10,000s more than non-mortgage prisoners over the lifetime of their mortgage.
Stories from mortgage prisoners
To better understand what it feels like to be a mortgage prisoner, MSE spoke to dozens. Here's what a few had to say (because of the sensitive nature of their situation, these responses are anonymous):
Being a mortgage prisoner has been hell to me, you worry about losing your home, you can’t plan on starting a family and moving forward with your life. The whole experience affects your mental well-being and this has got to stop.
It is a rock around my neck... It cannot be fair or reasonable to transfer a mortgage to an inactive lender, hike up the SVR and make it impossible... to find another deal.
It makes me depressed – I feel I have let my family down immensely – self-loathing and days of complete darkness… I have been on and off medication for 10 years. Being a mortgage prisoner has taken away so much of my inner being... I am not the person I was – I am beat.
MSE's long fight to help mortgage prisoners
MoneySavingExpert.com believes mortgage prisoners deserve better. That’s why we have been campaigning to help the estimated 250,000 mortgage prisoners for the past six years.
In the early days, MSE founder Martin Lewis was one of the only public figures fighting for justice. In 2015 he met key figures in the EU, the Treasury and the Financial Conduct Authority - the organisations responsible for UK mortgage regulations - to convince them that this was indeed a problem.
Since then there has been a “sea change”, including some good news for a small fraction of mortgage prisoners, when the FCA removed some barriers that stood in the way of some mortgage prisoners accessing a cheaper deal.
But there are still thousands of mortgage prisoners who have been pushed to their limits for more than a decade and remain trapped - and that’s why our fight continues.
Last November, the London School of Economic and Political Science (LSE) released new research, commissioned by MSE and funded by Martin Lewis, showing the urgent and necessary steps that could be taken now to release more mortgage prisoners from their financial cells.
We are calling on Government to look at these seriously and act now.
Here is MSE founder Martin Lewis explaining why MPs must look at the recommendations set out in the research by LSE:
The stress of being a mortgage prisoner can impact on nearly every other aspect of your life. Mortgage prisoners are more likely to have general debt problems or be in arrears, contributing to higher rates of physical and mental health problems.
If you're a mortgage prisoner you are not alone. In fact there are thousands in your shoes right now. You can find emotional and practical support and tips in online groups, that are free to join. Just remember, what might feel right and be right for one person is not necessarily right for you, so don't feel pressured to do anything or take any steps because others are doing so.
UK Mortgage Prisoners is an active group of about 3,600 members from all over the UK. It's for anyone who thinks they may be a ‘Mortgage Prisoner' - trapped on a high SVR and - often through no fault of their own - unable to change providers.
For the security of members, they ask only that you answer two simple questions about your circumstances before being accepted or we will not be able to approve your request.
The discussions are lively and range from talking about lenders, brokers, government regulations to general mental health support and activism, but as it's not affiliated in any way with MSE we cannot take responsibility for any of its content. You can join for free here.
If you're not on social media, the group also has a newly launched website where they share their latest news and updates.
Free debt help from charities
The aim is to find non-profit debt counselling help. In other words, a one-to-one session with someone paid to help you, not to make money out of you. Be careful not to confuse this with 'free help': many commercial companies say they're free as you're not charged directly, but you'll still pay somehow. Also avoid any debt help or loan consolidation companies that advertise on TV or in some newspapers. Their job is to make money out of you, plain and simple.
Three organisations to contact for advice:
Full debt and consumer advice service. Many bureaux have specialist caseworkers to deal with any type of debt, including repossessions and negotiation with creditors.
National Debtline provides free advice and resources to help people deal with their debts. Advice is available over the phone, online and via webchat.
- Tel: 0808 808 4000
- Opening Times: Mon - Fri 9am to 8pm, Sat 9.30am to 1pm
Mortgage prisoners FAQs
While it may seem hard to believe, the main principle underpinning the current situation is a sensible one, as it's rooted in more responsible lending ultimately to protect customers from getting into unmanageable debt.
After the financial crash just over a decade ago, mortgage lending rules were tightened. Suddenly homeowners, who successfully applied for and were granted mortgages under the old rules, now didn't not pass under the new ones. So when they tried to switch to new lenders - even if they were up-to-date with all their payments - the tighter rules prevented them from doing so.
To make matters worse, the majority of these homeowners had mortgages with Northern Rock and Bradford and Bingley. After these lenders collapsed and were taken over by the Government, their loan books were sold on to unregulated entities, eg, private equity firms that became de facto mortgage providers EVEN though they were not authorised to lend or provide services or other products - these are also known as "closed-book" firms.
Regulated, active lenders can offer new deals without going through a standard affordability assessment, but the closure of the lender – and the subsequent sale of the mortgage book meant that customers didn’t have the option of a new deal.
So unless they happened to meet the tougher affordability rules and could switch elsewhere, these homeowners were now trapped on their lenders' reversion rates - often referred to as standard variable rates or SVRs - which are what most borrowers end up on after the end of an incentive period such as a two-year fix or two-year discounted variable rate.
But they're often expensive. Usually homeowners remortgage to another deal to avoid paying over the odds. This is not an option for mortgage prisoners who typically end up paying £1,000s - and occasionally even £10,000s - more every year than similar mortgage customers with mainstream lenders.
In normal circumstances, if you are unhappy with a rate, service or the terms of your mortgage deal, you would have the option to apply to switch to a new lender or transfer to a different product (while you can do it in the middle of the deal there are hefty charges for doing so, so you typically have to wait until your deal ends).
But if you're a mortgage prisoner, the new stricter affordability rules mean you’re stuck with whatever terms, rates or service your existing lender offers you. This can result in years (some have been trapped for over a decade) of sky high rates with no option but to pay - or lose your home.
Here's an example:
- Nelly isn't a mortgage prisoner: She owns 25% of the equity in her home and has a £150,000 loan. The average two-year fixed-rate is 2.43%, amounting to £668/month. If she remortgaged to similar deals over the lifetime of her 25-year mortgage, the total interest at the end would come to £50,400.
- Mark is a mortgage prisoner: He has the same amount of equity as the above example. He would end up paying £824/month on a rate of 4.39%. The total interest after 25 years would come to £97,323.
Result: £97,323 (Mark Mortgage Prisoner) - £50,400 (Nelly Not-a-Mortgage-Prisoner) = £46,923. This means Mark Mortgage Prisoner could end up paying nearly double the amount of interest compared to Nelly Not-a-Mortgage-Prisoner during the lifetime of the mortgage.
The FCA is clear that homeowners who are behind with their payments are NOT mortgage prisoners. Its stance is grounded in the fact that through being in payment difficulties your are signalling a need for more considered and tailored support than just a product switch.
However, at MSE we believe you CAN still be a mortgage prisoner. This is because 1,000s of genuine mortgage prisoners have been trapped for so long that it's almost inevitable that some will be in arrears precisely because they've had to pay over the odds for so long.
In its landmark report, the London School of Economic and Political Science (LSE) commissioned by MSE and funded by our founder Martin Lewis, found that mortgage prisoners were up to 40% more likely than other borrowers on similar incomes to default due to coronavirus.
So when we talk about helping mortgage prisoners, we include people who've missed payments.
But the reality is that all lenders must see evidence of timely payments, and they will usually not offer customers who are in payment shortfall a new deal.
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