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30 November 2021

The term ‘mortgage prisoner’ has been hitting the headlines more and more over recent weeks. But what is a mortgage prisoner? Mortgage prisoners are borrowers who are up to date with payments but find that they cannot switch when it might benefit them to do so. This is because they have loan and/or borrower characteristics that are outside current lender appetite.

The Government asked the Financial Conduct Authority (“FCA”) to provide them with data about mortgage prisoners. The Government hope this data will help them to decide if there are practical and proportionate solutions to help these borrowers. The FCA reviewed 195,000 mortgages in closed books with inactive firms.

Of 195,000 mortgages the FCA reviewed, the Regulator estimated that;

  • 66,000 borrowers may be able to switch to better deals but have not yet done so.
  • 30,000 borrowers that are unable to switch to better deals.
  • 47,000 borrowers that are mortgage prisoners. This means they would benefit from switching but are unable to do so.
  • 34,000 borrowers who are in payment shortfall. This means that they would be unable to to switch to a new deal even if they were with an active lender.

The FCA also reviewed the effectiveness of regulatory intervention to remove barriers to switching. The FCA found that the demand from borrowers and supply from lenders was low. The FCA said that they encourage lenders to consider whether they can amend their lending criteria to accommodate mortgage prisoners that are near their risk appetite.

Mortgage prisoners who continue to lie outside the risk appetite of lenders may be able to take steps, with the help of consumer organisations or a debt advice charity, to improve their chances of switching to a better deal in the longer term. The FCA have committed to publishing data so lenders can consider whether they can adapt their lending criteria (or use the flexibility in our rules) to lend to these borrowers.

The Government will use the information provided by the FCA to establish if there are further practical and proportionate solutions for mortgage prisoners. You can read the FCA’s review here.

By Ian Beardmore

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