Mortgage Prisoners May Face 9% Rates

Published / Last Updated on 05/10/2022

UK Mortgage Prisoners Group representative Rachel Neale has written to the Financial Conduct Authority demanding take action to deal with mortgage lenders and now ‘non-lenders’ that still hold mortgages for those that are trapped in ‘toxic’ mortgages.

What is a Mortgage Prisoner?

Before the Credit Crunch Crisis of 2009/2009 crisis, mortgage lending was out of control with many lenders ‘over lending’ to borrowers that could ill -afford the mortgage at the time, over borrowed and would struggle if interest rates increased or there was a risk of them defaulting.

  • In some cases, borrowers were allowed to ‘self certify’ to confirm their income for a mortgage without ever having to prove it.  Clearly, many borrowers, desperate to get on the housing ladder would self certify their income at say £50,000pa when they only earned £30,000 allowing then to borrow more.
  • Other lenders were offering mortgage loans up to 10 X their income.
  • In times of difficulty, this meant that many borrowers defaulted on their mortgage creating ‘toxic debt’. 

As we all know, many banks and lenders failed or were bailed out by banks across the west to cover their ‘toxic debt’.

In the UK, a Mortgage Market Review was proposed in 2009, was published by the FCA and came into force in 2014.  This required lenders and mortgage brokers to:

  • Carry out suitability and affordability checks on a borrower’s ability to pay their mortgage today.
  • ‘Stress tests’ covering the first 5 years of a loan to check that a borrower would still be able to afford their mortgage if they reverted to a lender’s Standard Variable Rate plus an extra 3% on the rate (i.e., a real increase in mortgages rates as we are seeing today).  The Stress Test was withdrawn on 1 August 2022 given huge rate rises expected over the coming years.
  • These high ‘loan to value’ rules and stress tests applied to all lenders with lending of more than £100m per year.  This was designed to also stop lenders from over lending and being exposed to toxic debt in the future.

Impact – Mortgage Prisoners

Many borrowers now find themselves trapped on Standard Variable Rates (SVR) as the term of their mortgage deal ends and they find themselves trapped in affordability tests making them unable to remortgage elsewhere. They are now mortgage prisoners, trapped on much higher SVRs with interest rates rising.

Neale predicts that many prisoners now face interest rates of 9% pa or more with little or no help from the FCA or government hence her lobbying the FCA.


For 10 years now, the government and the FCA have talked a good game without any real action save:

  • 4 years ago, introducing a system that some lenders would accept both new mortgage applications and existing client remortgage application from ‘mortgage prisoners’ to move away from the SVRs they now find themselves on  provided they could demonstrate that they had kept up to date with payments. 
  • 3 years ago, the FCA added further help in that mortgage prisoners could also add the costs to remortgage and adviser fees to their mortgage without affecting lending criteria.
  • August 2022, the FCA withdrew SVR + 3% stress test affordability requirement, again making it easier.

This is too little, too late.  Many borrowers got into difficulty during covid-19 lockdowns, lower furlough pay and redundancy, now even more may get into difficulty with high energy prices, cost of living increases as well as interest rates rises and if you are trapped in a SVR + % mortgage, as Read suggests it may mean 9% + mortgage rates.

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