Mortgage lenders have committed to helping thousands of UK homeowners currently trapped in expensive mortgage deals taken out before the financial crisis.

Termed “mortgage prisoners”, they have had no possibility of switching mortgage deal to take advantage of lower rates over the past 10 years.

Despite making regular mortgage payments without default, stricter affordability tests meant that the wealth of these borrowers was no longer enough to qualify them for a mortgage. As a result, up to 150,000 homeowners found themselves unable to move to a better deal when their existing mortgage term finished and automatically switched to their lender’s more expensive standard variable rate.

According to the Financial Conduct Authority (FCA), 120,000 homeowners had mortgages held by non-regulated firms, and 30,000 with authorised mortgage lenders. Of the 30,000 borrowers with authorised lenders, about 10,000 are with lenders still actively operating in the mortgage market.

10,000 homeowners to be offered lower rate deals

It is to these 10,000 homeowners that 59 lenders, under the organisation of trade body UK Finance, have made a voluntary commitment to help find better mortgage deals. While rules set by the regulator mean that these borrowers remain blocked from searching the whole market for a better deal, they will receive a letter from their existing lender with details of lower rate mortgage deals available to them.

Lenders that have committed to the agreed common standards to help borrowers include Santander, Barclays, Natwest, Nationwide, Lloyds, RBS, Skipton and a range of building societies, in all representing 93% of the UK mortgage market. A number of these lenders already offer existing customers in this situation the opportunity to switch mortgage deals, but all have agreed to write to every qualifying borrower by the end of 2018 if they have not already done so.

Lenders will be contacting customers who:

  • are first charge owner-occupiers
  • are existing borrowers of an active lender
  • are on a reversion rate
  • are looking for a like-for-like mortgage
  • are up-to-date with payments
  • have a minimum remaining term of two years
  • have a minimum outstanding loan amount of £10,000
  • are able to benefit from switching.

What about the 140,000 remaining mortgage prisoners?

The FCA will be considering what might be possible for the 20,000 homeowners with inactive lenders and the 120,000 borrowers currently with unregulated mortgage owners who are not UK Finance, BSA or IMLA members and not authorised to offer new mortgage deals.

Jackie Bennett, director of mortgages at UK Finance, said: “We will be working closely with the FCA and active lenders to see what might be possible for customers of inactive and unregulated lenders.”