Glossary · UK
What is Mortgage Prisoner?
A borrower who is up to date with their mortgage payments but cannot switch to a cheaper deal because their loan is held by an inactive lender or unregulated entity and they fail current mortgage affordability rules.
Full Definition
A mortgage prisoner is typically someone whose mortgage ended up, often through no choice of their own, with an "inactive" lender -- a firm that no longer offers new mortgages, frequently having bought a back-book of loans (for example after the 2008 financial crisis, when Northern Rock and other lenders' mortgage books were sold on) -- or with an unregulated entity that cannot offer new deals at all. Because these borrowers cannot simply remortgage internally with a new product from their existing lender, switching to a cheaper rate elsewhere means applying afresh and passing the current lender's full affordability assessment, introduced after the Mortgage Market Review in 2014. Many mortgage prisoners fail that assessment even though they have a strong track record of paying their existing, often more expensive, mortgage on time -- common reasons include being on an interest-only mortgage with no agreed repayment vehicle, having a high loan-to-value, being older, self-employed, or having a lower income now than when the original loan was taken out. The Financial Conduct Authority estimated in a 2020 review that around 195,000 borrowers were in this position. Since then, the FCA introduced a modified affordability assessment that some lenders can use for borrowers who are up to date with payments and not looking to borrow more or move house, making it easier for a subset of mortgage prisoners to switch to a better rate with a new active lender. However, take-up has been limited, and many affected borrowers remain stuck on their existing lender's standard variable rate or an equivalent reversion rate, which is often significantly higher than rates available to borrowers who can freely remortgage on the open market.