Worrying rise in mortgage 'prisoners' threatened with repossession

So-called mortgage "prisoners" unable to free themselves from significantly higher rates through no fault of their own, are calling on the government to enforce an "immediate moratorium on repossessions".

Figures from the Ministry of Justice show that mortgage possession claims are on the rise, increasing from 3,991 to 5,343 (34%) in the second quarter of 2024 compared to the same time last year.

Warrants of possession, which give court bailiffs the authority to evict someone from their home, increased from 2,679 to 2,918 (9%), while repossessions by bailiffs rose from 660 to 854 (29%).

Mortgage prisoners are mainly homeowners who took out mortgages many years ago, when terms were more favourable before the financial crash of 2007-08. They are now facing significantly higher rates with no way to switch providers, with an estimated 200,000 people thought to be in this predicament.

Jill Hume, of the UK Mortgage Prisoners campaign group, warns that many homeowners have endured 14 consecutive rate increases, with their rates now nearing 10% – a far cry from the current average of 4.8% for a five-year fixed rate deal.

Read more

• Northern Rock ‘mortgage prisoners’ sue TSB subsidiary that bought their loans (The Guardian)

• Mortgage prisoners: regulatory changes and low credit scores have left thousands trapped in a cycle of high payments(The Conversation)

• ‘I paid my mortgage for 36 years – and still lost my home to the bank’ (The Telegraph)

"They are now at crisis point... unable to pay the monthly payments, arrears building up and repossession threats quickly come from the non-lenders," Hume told Yahoo News.

By non-lenders, Hume is referring to acquisition companies, or "closed book" inactive lenders, with no ability to offer new, more favourable loans.

The state sold many homeowners' debts to these firms following the collapse of banks, including Northern Rock, following the financial crash 16 years ago. These companies aren't regulated to lend new mortgages – leaving many homeowners stuck with uncompetitive rates.

As many affected homeowners took out their mortgages before 2008, when rules on borrowing were tightened up, they found they couldn't pass affordability checks when trying to switch to a cheaper deal.

In March, Yahoo News spoke to a former Northern Rock customer who took out a £335,000 mortgage in 2007 and now owes nearly £15,000 more than she borrowed, despite keeping up with payments.

In a letter to the economic secretary to the Treasury Tulip Siddiq, UK Mortgage Prisoners called for an "immediate moratorium on repossessions" while the issue is addressed, adding: "This is the minimum that can be done in the short term, and action now will ultimately save families and homes."

So far, Siddiq has promised to meet members of the group in October, after Parliament's summer recess, but campaigners argue that by then, it will be "too late" for many families, with "homes being lost through forced sale and repossessions".

"Our members, many of whom are now at the end of their term with no products available to transfer to with the non-lenders, are having to opt for a forced sale, which could be classed as repossession really," said Hume.

"We have one elderly disabled lady who has no other option but to sell her adapted flat for her wheelchair and look to rent somewhere else. Her mortgage is over a £1000 a month and her benefits do not cover the payments."

What is UK Mortgage Prisoners proposing?

In the short term, the campaign group wants an "immediate halt to repossession actions due to arrears for mortgage prisoners trapped on SVRs or in closed books, and for pre-2008 interest only borrowers at term end.

This would be for an initial period of six months "to allow for time to work through solutions with the new government.

In the longer-term, the group has made the following demands:

• Ban the ownership of mortgage books by "inactive" lenders who do not operate lending licences or offer new products

• Ban the sale of any further mortgage books to inactive lenders and the holding of mortgages in securitisation vehicles without access to new products

• Hold accountable legal and beneficial owners of residential mortgages

• Help facilitate the transfer of mortgages to active lenders at a discount that reflects the tens of thousands of pounds of overpayments mortgage prisoners have overpaid in the years since 2008

• Review whether SVRs are compatible with the new Consumer Duty

• Review FCA Mortgage Prisoner definition

What has the new Labour government said about mortgage prisoners?

Before the general election, Sir Keir Starmer acknowledged the hardships of mortgage prisoners and promised things would be different for them under a Labour government.

In a leaders' debate with Money Saving Expert, he said: "Despite promises to look into the issues facing mortgage prisoners, the Conservatives have dragged their feet on this for years. In government we would work with regulators and the industry to ensure the issue is properly addressed.

"It's time for a change. My Labour Party will stabilise our economy and never play fast and loose with the nation’s finances."

However, former SNP MP Martin Docherty-Hughes, who introduced a bill in an attempt to change rules for borrowers, told Yahoo News in March that "nobody in Parliament – both in government and the official opposition – seems to want to do anything about it".

He suggested that Labour would have to face up to the fact that "it was them who set this ball rolling" under the leadership of Gordon Brown.

Some in the Labour party have been vocal on this issue, however, including Labour MP for Feltham & Heston Seema Malhotra, co-chair of the all-party group on mortgage prisoners.

Calling for reforms in January, she said: “We are hearing from mortgage prisoners who are struggling with bills and terrified that further interest rate rises will push them over the edge. We need urgent action from the Government and the FCA so that mortgage prisoners get a fair deal.”

The Labour manifesto makes promises to "keep mortgage rates as low as possible" and to introduce a "permanent, comprehensive mortgage guarantee scheme, to support first-time buyers", but makes no specific reference to mortgage prisoners.

"We are hopeful that the new Labour government will act urgently to propose a solution for mortgage prisoners, as they have supported our calls for legislation change in the past which the then Conservative government threw out," Hume said.

"We hope our meeting in October will be positive and that they will have read our mortgage reforms and be ready to make changes."

A HM Treasury spokesperson said: “We recognise the challenge that mortgage borrowers who are unable to switch to a new mortgage deal face, which is why we will work with regulators and the industry to ensure this issue is properly considered."