MSE News

UK regulator says 47,000 'mortgage prisoners' trapped on loans they can't afford to leave

Banks and building societies have been urged to relax their lending rules to help almost 50,000 'mortgage prisoners', who are trapped in expensive mortgages and are unable to switch to a cheaper deal.

The financial regulator has published its long-awaited review into the problem after being asked by the Government to produce data so that it can address the issue.

The report from the Financial Conduct Authority (FCA), which was published on Monday (29 November), has found there are 47,000 homeowners  stuck on expensive home loans they cannot afford to get out of. However, more than 30,000 have been excluded from the watchdog's calculations, and any future possible financial support, because they are behind on their payments.

Mortgage prisoners are borrowers who were unfairly left behind after the 2008 financial crash. Some are on loans with inactive lenders or unregulated firms that don't offer new mortgages, while others are unable to switch due to tough new mortgage affordability criteria brought in as a result of the crisis. One borrower we spoke to last year was paying 4.59% interest and had paid tens of thousands more than he needed to.

In its review, the FCA found there are 195,000 people who have mortgages with inactive firms and 47,000 who are defined as mortgage prisoners. However, 34,000 mortgages were omitted from the overall number because they are in arrears. This is despite the fact that those on very high rates are more likely to fall behind on payments. and its founder Martin Lewis have campaigned to try and help those who are unable to remortgage. Earlier this year, Chancellor Rishi Sunak agreed during an interview with Martin that there was a need to "make sure" there are "workable solutions" to help all mortgage prisoners.

Martin Lewis

Martin: 'These people are trapped in mortgages they can’t afford to pay' founder, Martin Lewis, said: "My initial response is that while I welcome the fact this report shines a light on the plight of mortgage prisoners, I am concerned about the narrowness of the Financial Conduct Authority’s (FCA's) definition. It is excluding those people trapped with inactive lenders who have had a payment shortfall – yet clearly the cause of the shortfall for many will have been the fact they were a mortgage prisoner, and that catastrophised their finances. 

"It is therefore extremely important that this definition of mortgage prisoners does not dictate the Government’s view on who should be helped. Yet, this is a lengthy report and we need some time to analyse it and clarify the FCA’s thinking on this, before coming out with a more considered response.”

Those in arrears are isolated from much-needed support

In its report, the FCA defined a mortgage prisoner as a borrower who is up to date with payments and "unable to switch to a new mortgage deal".

The regulator said there is no link between the interest rate paid and falling into arrears, despite its own analysis showing that closed book mortgages have a higher proportion of mortgages in payment shortfall. 

The FCA said: "We take these away [the 34,000] because borrowers who are not up to date with payments cannot switch to a new deal even if they have a mortgage with a lender in the active market.”

For more information on this, see our full Mortgage Prisoners guide.

MSE weekly email

FREE weekly MoneySaving email

For all the latest deals, guides and loopholes simply sign up today – it's spam-free!