What is a Mortgage Prisoner?

In the UK, the estimations for how many mortgage prisoners there are range from 200,000 in total to 850,000 (or 1% of total borrowers) depending on which source or review you read. The truth is likely to fall somewhere between those two figures, which unfortunately is still a remarkably high figure.

If you are a mortgage prisoner or want to avoid becoming one, this guide explains what constitutes a mortgage prisoner, how to avoid it and what you can do to escape the so-called prison.

Let’s tackle this challenging subject and explore what is a mortgage prisoner?

The Definition of a Mortgage Prisoner

In the UK it is estimated that anywhere between 0.25% and 1% of all borrowers are mortgage prisoners. A mortgage prisoner is someone who is trapped in a mortgage product with an inability to switch products.

Frustratingly, the definition of a mortgage prisoner differs between each body that evaluates the market. This has lead to the skewed data mentioned above.

In 2021, the UK government undertook a review of mortgage prisoners with the aim of identifying how many existed and what could be done to help them. The government definition of a mortgage prisoner is:

• A borrower who is unable to switch to a new mortgage deal,
• Would benefit financially if they were able to switch.

This definition is considered overly broad within the industry, and it is the government review that highlights higher amounts of mortgage prisoners compared to other studies. With that said, the government has no skin in the game so to speak and with access to data across the industry it is likely their findings are reliable.

Inactive Lenders

Most mortgage prisoners are prisoners by misfortune. Originally, they borrowed money from a lender who is no longer lending money. For example, a borrower might have taken a mortgage with a company who ceased trading or became insolvent.

These companies still have their mortgage books which are normally sold on as part of the insolvency process. Once those books are sold, the buyer may choose to leave the mortgage book as it is. Other lenders such as Northern Rock (defunct) who were eventually bought by Virgin Money, still have their mortgage books serviced to some extent.

When existing mortgage books are left un-serviced, borrowers will inevitably end up on a Standard Variable Rate when their product term ends. Because Standard Variable Rates are much higher than the interest rates offered by lenders as part of a deal, the cost to mortgage borrowers can be significant.

Mortgage Prisoner Compensation

There is no official mechanism in place from the government for compensation. Although at times a compensation scheme has been discussed.

If you wish to seek compensation as a mortgage prisoner, you can join one of many ongoing class-action lawsuits or bring a private claim. Typically, these class action lawsuits are undertaken on a no-win no-fee basis. Private lawsuits can be costly, so wherever possible it is best to find a class action to join.

Lawsuits present various challenges, most notably, the fact the legal claim is being made against an entity that likely no longer exists and may not have any funds left to pay any compensation.

Other Mortgage Prisoners

According to the government definition of a mortgage prisoner, you need not have borrowed from an inactive lender.

Anyone who is unable to remortgage onto a better mortgage product would be considered a mortgage prisoner. For example, if you took a mortgage product and lost your job and can no longer pass affordability or if lenders have tightened their affordability criteria and prohibits you from remortgaging.

This portion of mortgage prisoners is growing year on year as a result of increased lender affordability thresholds.

Under the Conservative Party, this practice was to be addressed to ensure borrowers had more options. With the change of administration after this years’ election, it is uncertain what government policy will be going forward.

Help for Mortgage Prisoners

Outside of the court system, there are a few charities who help mortgage prisoners. These charities range in the services they offer.

Step Change is a debt management charity that provides advice for those struggling with debt and helps them resolve debt issues.

There are also companies that offer mediation services with lenders to try and help mortgage prisoners get free.

Finally, mortgage brokers are playing a crucial role in assessing whether or not borrowers are actually mortgage prisoners. Many people who feel trapped on a mortgage product are in fact able to remortgage elsewhere. Sometimes the lenders they can use are not readily accessible and would only be available through a mortgage broker.

Escaping the Mortgage Prison

In the first instance, you should clarify whether you are considered a ‘true’ mortgage prisoner.

As mentioned, you may be able to remortgage onto a more favourable product without realising it is possible. You should contact a mortgage broker and outline your existing mortgage and your current circumstances.

A mortgage broker will evaluate this information and provide a tailormade recommendation. You may not be able to escape the mortgage prison immediately, but a reputable mortgage broker will provide you an action plan to complete and escape the mortgage prison wherever it is possible.

They will then contact you in the future when the necessary actions have been implemented to get you out of the unfavourable product.

How to Avoid Becoming a Mortgage Prisoner

The scary aspect of any mortgage borrowing is that anyone can become a mortgage prisoner without having the ability to react and avoid the situation.

Even the biggest lenders can fail and banking scandals including the 2008 financial crash and the Barings Bank scandal highlight this.

In this respect, there is little you can do to prevent your lender becoming inactive.

In terms of a change of circumstances or stricter affordability calculations when it comes to remortgaging, you should be able to escape the mortgage prison by ensuring your mortgage broker is updated with any changes to your situation.

For example, even with most lenders now having stricter lending criteria, there are still a large number of lenders with very lenient affordability calculations.

Speak to a Broker

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Broker. Boon Brokers offers fee free mortgage advice.

If you are a mortgage prisoner, contact Boon Brokers today for a full personalised recommendation.