A number of constituents have contacted me regarding the issues surrounding Mortgage Prisoners. Although definitions vary, generally speaking “mortgage prisoners” are people who are unable to switch mortgages to a better deal, even if they are up to date with their payments. Most mortgage prisoners have a mortgage in a closed book of an inactive firm. This means that the mortgage is held with a lender that can no longer make mortgage contracts because they are not authorised to do so.

This issue really around the collapse of Northern Rock in 2008. When the Government sold the Northern Rock and Bradford & Bingley mortgages, UK Asset Resolution indicated to Lord McFall, the former Labour Chair of the Treasury Committee, that selling those loans would result in customers being offered new deals, extra lending, and fixed rates. Although the requirement was not explicitly written into the contract when the loans were sold to Cerberus Capital Management and others, it was generally understood that such provisions would be in place. However, Cerberus, which purchased the loans, has chosen not to offer customers new deals, extra lending, and fixed rates.

It is worth noting that the Government has sold the mortgages of mortgage prisoners to various buyers. Unfortunately, some of these buyers have taken advantage of mortgage prisoners by imposing high interest rates. Additionally, under FCA rules, mortgage prisoners were led to believe that they could not afford to pay less for years, which was not accurate. Despite having regulatory oversight over many of these funds, the FCA has refrained from intervening to ensure fair treatment of mortgage prisoners.

Although this situation is particularly difficult, you may be pleased to learn that there has been significant recent progress made on this issue, and from the previous meetings and discussions, I have had with Treasury Ministers on this issue, I know that the Government has committed to attempting to find practical and proportionate solutions.

In June 2023, there was a Westminster Hall Debate on Mortgage Prisoners which was tabled by Martin Docherty-Hughes MP. As a Minister, I am afraid that I am unable to speak in debates or statements in Parliament, apart from those that relate to my own Ministerial portfolio. Nevertheless, the Economic Secretary to the Treasury, Andrew Griffith MP, who responded on behalf of the Government during the debate, repeated the commitment to look at where specific interventions would be fair.

The Government has been working closely with the Financial Conduct Authority (FCA) to assess the extent of mortgage prisoners in the UK. The FCA conducted a review into this issue, which revealed that there are now around 47,000 borrowers who are mortgage prisoners. Most of the difficulties these borrowers face in switching can be traced back to looser lending practices prior to the 2008 financial crisis; for example, borrowers self-certifying their income on mortgage applications, or taking out an interest-only mortgage with no clear repayment plan. Since then, more robust lending practices mean some of those borrowers may now struggle to qualify for a new mortgage deal with a different lender; others may simply not be aware of their options to switch.

The Government has shown it is willing to act and has worked with the FCA to implement changes to its mortgage lending rules, removing the regulatory barrier that prevented some customers, who otherwise may have been able to switch, from accessing new products. These rules should allow customers to switch to an active lender as long as they meet the lender’s risk appetite and certain criteria, such as not looking to borrow more. While I am pleased that these interventions have benefitted some mortgage prisoners, it is clear that the total number who have benefitted from these interventions is small. The FCA’s review makes clear that the reasons borrowers struggle to switch are complex and varied.

Following the review, solutions will continue to be sought that can defuse some of the deleterious impact on people and get more people the ability to switch, whilst dialogue and engagement will continue across industry, with the regulator. As well as with those who have done work as part of a report on the matter conducted by the London School of Economics (LSE): 'Releasing mortgage prisoners'. The Government is committed to looking for practical and proportionate options where they will deliver genuine benefits for affected mortgage borrowers, and where interventions are fair to borrowers in the active market, and to taxpayers. Unfortunately, it has proved that there are no easy solutions to this issue. Additionally, I know that Ministers are aware of the proposals as set out in the report and will consider the proposals carefully. However, it is estimated that those solutions could cost between £50 million and £348 million over 10 years, depending on take-up. While the overall outlay would be between £370 million to £2.7 billion, that is reduced to £50 million to £347 million net as the Government would hold some equity loans themselves.

I would also like to assure you that Ministers remain engaged on this issue. I have been assured by the Economic Secretary to the Treasury, Andrew Griffith MP, that they are regularly in contact with key stakeholders, including recently with the All-Party Parliamentary Group (APPG) on Mortgage Prisoners, who met with HM Treasury Ministers and Officials to discuss this important issue. Further work on this issue must consider the practicality of solutions and their effects on the wider mortgage market, including fairness to other borrowers.

Understanding the circumstances of mortgage prisoners is crucial and the review makes clear that the reasons mortgage prisoners are unable to switch are complex and varied, including a high proportion of interest-only mortgage borrowers with no clear repayment plan and pre-financial crisis legacy issues such as borrowers self-certifying their income on their loan applications.

In addition to the support outlined above, the Government also offers support to mortgage borrowers through Support for Mortgage Interest loans to homeowners in receipt of an income-related benefit. This is on top of the decisive action that has been taken by the Government to support households across the UK through the cost-of-living challenges ahead, whilst remaining fiscally responsible. More information on support households may be eligible for can be found on the Government’s ‘Help for Households’ website at: https://helpforhouseholds.campaign.gov.uk/

Borrowers may also wish to get in touch with MoneyHelper, which has been set up by the Government to support consumers with comprehensive and consistent guidance for every stage of their financial lives. It offers free and impartial information on money matters, available to all online at: https://ww.moneyandpensionsservice.org.uk, face-to-face, or by calling the MoneyHelper helpline on 0800 138 7777.

Thank you for all those who brought this issue to my attention, I understand how important an issue this is to those affected and I will continue to follow these developments closely.