Mortgage prisoners

If you want to remortgage but find yourself stuck in your current deal, find out how you could escape.

Kim Jones
Kim Jones
Updated 23 June 2022  | 2 mins read

Key points

  • A mortgage prisoner is a homeowner trapped in an expensive mortgage they can’t escape
  • Usually, it’s because they took out their mortgage before the financial crash of 2008 and now can’t pass the strict affordability tests that would allow them to switch to a new, cheaper deal
  • As a result, they could end up paying thousands of pounds more than they need to over the lifespan of their mortgage

What is a mortgage prisoner?

The term 'mortgage prisoner' is used to refer to anyone who, despite keeping their mortgage payments up to date, has become trapped with their current mortgage, unable to switch to a cheaper deal.

Stuck in an uncompetitive mortgage and usually on the lender’s expensive standard variable rate (SVR), they’re paying more than they need to, mainly because they don’t meet the strict affordability rules that were introduced after the 2008 financial crisis.

Many mortgage prisoners are people whose provider collapsed in or soon after the financial crash and their mortgages were sold to investors that weren’t authorised or regulated by the Financial Conduct Authority (FCA). They’re not able to pass the strict eligibility criteria to remortgage, so can’t switch to a better rate.

They also tend to be ‘closed books’ customers, which means they’re with a firm that no longer offers new mortgage products.

How do you become a mortgage prisoner?

The lending criteria for mortgages was far less strict before the financial crash of 2008.

When regulators imposed tougher lending criteria and stricter affordability rules in 2014, many people who took out a mortgage before the financial crash were unable to meet these new conditions. As a result, if they tried to switch, they were refused applications for more competitive, cheaper mortgage deals and were kept ‘prisoner’, stuck on these more expensive mortgages.

What help is there for mortgage prisoners?

In October 2019, the Financial Conduct Authority (FCA) introduced a new modified affordability assessment in an attempt to help certain groups of mortgage prisoners switch to a cheaper deal.

The new rules allow lenders - should they choose to - to waive certain affordability checks, such as scrutinising income and expenditure. Instead, it takes into account other criteria, like an up-to-date mortgage payment history.

You can find out if you may be accepted under the new modified assessment rules by using the government’s MoneyHelper remortgage eligibility tool.

Alternatively, if you’re with a lender that’s active in the mortgage market you could ask them to switch you to a better deal.

If you’re with an ‘inactive member’ (one that’s no longer lending to new customers), then there’s a chance you could switch to a better deal with a lender who is part of the same financial group.

It could be worth exploring your options with a mortgage broker/adviser. MoneyHelper has a list of firms with advisers who can help.

Why is being stuck on your mortgage so bad?

Most mortgage prisoners are stuck on a ‘closed book’ lender’s SVR, a high interest rate you’re moved onto should you fail to switch to a better deal after a fixed-rate period ends.

This can end up costing you tens of thousands of pounds more overall than you would be paying were you able to switch to a more competitive deal.

If you’re behind with mortgage payments, are you a mortgage prisoner?

No, the term mortgage prisoner applies to borrowers who are up to date with their payments but who can’t switch, when it would be of benefit for them to do so, because of current lender criteria.

If you can't make your mortgage payments, what should you do?

If you have any difficulty paying your mortgage, you should contact your lender as soon as possible to discuss options.

They may be able to help by offering you a reduction in the amount you pay for a short period of time, or a repayment holiday. Another option might be to increase your mortgage term (the length of the mortgage), so that monthly repayments are lower. But this will mean you’ll end up paying more in interest overall.