Understanding mortgage prisoners

Following our Policy Statement on the changes to the responsible lending rules, we have published further data on the mortgage prisoner population. 

Our Mortgage Market Study estimated that around 140,000 borrowers were unable to switch to a better deal even though they were up-to-date with their payments. To help fix this we changed our rules late last year to allow lenders to assess affordability based on a borrower’s track record of making mortgage payments.

We also collected data to understand more about borrowers who have a mortgage held by an unregulated firm and we looked at the data we collect from regulated firms.

Key findings

  • Around 250,000 people are in closed mortgage books or have mortgages owned by firms that are not regulated by us.
  • However, our research shows around 170,000 of these borrowers are up-to-date with payments and would be eligible to switch because of our new rules.
  • Over half of the group that are eligible are paying interest of 3.5% or less. 39% are paying an interest rate of less than 3.0%.
  • Of those eligible to switch, 40,000 have less than £50,000 to repay, many of whom have less than 10 years remaining on their mortgage.
  • Both these sets of borrowers may find limited value in switching depending on the deals we find.
  • We estimate around 14,000 eligible mortgage prisoners should be both likely to meet commercial lending criteria and stand to make a meaningful saving.
  • This aligns with the estimates published in our Consultation Paper on changes to the responsible lending rules in October 2019.

Population

We first shared data on the mortgage prisoner population in 2016. Since then, we’ve shared further data in the cost benefit analysis that accompanied our consultation on changes to the responsible lending rules. The cost benefit analysis found that between 2,000 and 14,000 borrowers would be able to switch to a better deal. The data published on this page is consistent with our earlier findings. Industry discussions also suggest that around 14,000 borrowers are likely to meet the criteria for the modified affordability assessment as well as the likely commercial appetite of lenders and so benefit from a more affordable mortgage deal.

The interest rates borrowers are paying

While the changes to our responsible lending rules will allow many borrowers to switch, the majority of borrowers who have been unable to switch are already on relatively low interest rates.

Over half of these borrowers are on an interest rate of 3.5% or lower, and so are unlikely to find a deal that will be cheaper for them over the remaining term of the mortgage.

Which borrowers can meet the lenders criteria

We have worked with industry groups to better understand the lender decision making process and how various characteristics can make borrowers more, or less, attractive lending prospects. These characteristics vary and influence the credit risk for borrowers; they include the loan to value ratio, the age of the borrower, remaining length of the term and remaining balance.

Some borrowers’ circumstances, such as being in negative equity or having other debts, will mean they will be outside of any lender’s credit risk appetite. Other borrowers, almost 40,000, have mortgages with terms that are close to ending or that are too small to be attractive lending prospects for some lenders.

Those paying lower rates, with smaller amounts to repay and those with interest-only mortgages may find it challenging to find lenders willing offer cheaper deals.

Interest only mortgages

Over 90,000 borrowers (56%) who have previously lacked a switching option have interest-only mortgages. Although the modified rules mean this is no longer a regulatory requirement, lenders are likely to want these borrowers to demonstrate a credible strategy for repaying the balance at the end of the mortgage term, which may be difficult for many.

Helping those who could switch

We set up an Industry Implementation Group to help lenders implement the new modified assessments. The Group brings together interested lenders, intermediaries and administrators.

Summaries of previous meetings and a list of Implementation Group members are available on the Implementation Group page.

While medium and small lenders have been engaged with the Implementation Group, there has been disappointingly little interest or engagement from the major mortgage lenders.

Next steps

We want as many lenders as possible to offer the modified affordability assessment. The evidence so far has shown little desire from larger lenders to adopt the changes. We look forward to more lenders stepping forward and offering products to mortgage prisoners in the coming 3 months. Their participation in this market will be what makes a difference to borrowers currently paying more in interest than they need to.

Mortgage prisoners data

The following charts show analysis of the entire dataset which includes all borrowers in closed mortgage books and those who have mortgages owned by unregulated firms regardless of their eligibility to switch because of our new rules. We conducted a data gathering exercise which collected details on all mortgage accounts owned by unregulated firms. This data was combined with details of mortgage accounts held in closed books of regulated firms.

Chart tips: hover over data series to view the data values and filter the data categories by clicking on the legend.

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Chart 1 shows that 43% of the borrower population have Capital Repayment mortgage. The remaining 57% have interest only or mixed repayment mortgages.  

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Chart 2 looks at the outstanding value of mortgages held by this borrower population. 21% of these borrowers have less than £50,000 remaining, 32% have a balance of between £50,000 and £100,000 outstanding. The remainder, 47%, have a mortgage balance of more than £100,000.

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Chart 3 shows that 71% of the borrower population are not in payment shortfall, and have not been in payment shortfall in the last 12 months. Of the remaining 29%, 20% are currently in payment shortfall and 9 % are not currently in shortfall, but have been in the last 12 months. 

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Chart 4 considers credit impairment of this population of borrowers. 31% of borrowers were credit impaired at origination, 37% were not credit impaired at origination. The credit impairment status was not known for 32% of this population.

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Chart 5 looks at the remaining terms of mortgages held by this borrower population. 13% of these borrowers have less than 5 years remaining, 24% have between 5 and 10 years left on their mortgage. The remainder, 63%, have a remaining term of more than 10 years.

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Chart 6 looks at the interest rates paid by this borrower population. 35% of these borrowers are paying less than 3%, 16% are paying between 3% and 3.5%. Of the remaining 49%, 32% are paying between 3.5% and 5% and 17% are paying more than 5% interest. 

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Chart 7 compares the LTV levels of mortgages held by capital repayment borrowers and the LTV levels of mortgages held by interest and mix repayment borrowers. Capital repayment borrowers tended to have lower LTVs than Interest-only and mixed repayment borrowers.