Mortgage Prisoners Inquiry Bill [HL]

Lord Bishop of Chelmsford Excerpts

Friday 7th February 2025 Lords Chamber

[The Lord Bishop of Chelmsford]

My Lords, I want to begin with a confession: I did not know much about the scandal of mortgage prisoners until just a few weeks ago. It surprised me how long this has been left unresolved. I felt compelled to speak to the plight of mortgage prisoners because, when a group of people are marginalised and suffer due to institutional failures, it is important that they are not forgotten and that the injustice is put right. So I thank the noble Lord, Lord Sharkey, for bringing this legislation forward, and I am grateful to everyone who is contributing today. We may well be a small group in this debate but it is no less significant because of that.

Mortgage prisoners are trapped in a set of circumstances that afflicts their lives. Excessive interest payments on their mortgage, financial stress for their families, powerlessness to change their circumstances and their lack of choice compared to most borrowers—all in the context of the cost of living crisis—leave many struggling to afford their homes. This is also a crisis not of their own making. It is reasonable to believe that home ownership would lead to further stability, yet many mortgage prisoners face a perilous fate, with their hopes shattered and lives turned upside down.

There is no legal definition of a mortgage prisoner. The FCA defines them as closed book borrowers who are unable to change to a new mortgage deal despite being in a position where they would benefit from switching if they met lenders’ risk appetite. This definition captures around 47,000 mortgage prisoners but thousands more are excluded because they are either in arrears, near the end of their mortgage term or already paying close to market rates. If we take this broader definition, there are possibly more than 200,000 mortgage prisoners still left in the UK, although the precise number cannot be estimated without the Treasury releasing the data.

The mortgage prisoner problem emerged from the financial crisis. For some, their misery has never ended, starting with the collapse and eventual bailout of Northern Rock and Bradford & Bingley. It was not meant to be this way. Northern Rock was an AAA lender and regarded as one of the largest and safest banks, with a fast-growing national presence that had roots firmly tied in the north-east. Once Northern Rock collapsed, the Government took over and later resold those mortgages back into the private sector, but without written assurances that customers would be able to access the remortgage market. A small proportion were bought by active mortgage lenders but most were sold to closed book lenders, such as Heliodor Mortgages—an entity that none of us could borrow from but which exists solely to serve former Northern Rock customers. To give a sense of how dissatisfied these customers are, every one of the 134 Trustpilot reviews of Heliodor is one star, the lowest possible rating.

This situation has been exacerbated by the increase in interest rates over the past few years. As the Bank of England raised the base rate 15 times in two years, the standard variable interest rates paid by mortgage prisoners shot up. Other borrowers can avoid paying SVRs by switching to a fixed-rate mortgage or a tracker mortgage. The problem for prisoners is that they cannot switch and are at the mercy of the lender.

I was for obvious reasons particularly sorry to hear about the terrible case of the gentleman in Chelmsford to whom the noble Earl, Lord Lytton, referred—I think it was a Mr Wilson. I want additionally to read briefly some testimonies of mortgage prisoners, which Martin Lewis, who has already been mentioned, has gathered on his Money Saving Expert website. One said:

“Being a mortgage prisoner has been hell to me, you worry about losing your home, you can’t plan on starting a family and moving forward with your life”.


Another said:

“It cannot be fair or reasonable to transfer a mortgage to an inactive lender, hike up the”


standard variable rate

“and make it impossible ... to find another deal”.

Although the market is meant to deliver choice, it is broken if consumers are unable to switch because their mortgages have been sold to investment firms that are not authorised to make new contracts.

Mortgage prisoners deserve our attention. Many have suffered enormously already. Some are trapped in paying interest-only mortgages and with little equity left in their homes. In most cases, families cannot easily move elsewhere when they have young children or strong ties to their localities. Many are unable to cope with the high interest payments and are now in arrears, which narrows their options even further. This situation is a consequence of the way in which government sold the mortgages of collapsed lenders back into the private sector, as well as the failure to take proper responsibility since then; that is why I support the proposal in this Bill to set up a public inquiry to investigate the issue.

The LSE has advised that all closed book borrowers should be offered comprehensive advice. Other suggestions include equity loans on the model of Help to Buy and a government guarantee for active lenders to offer prisoners new mortgages. Clearly, this is a complex issue, but, if a public inquiry can lead to decisive action to set these mortgage prisoners free, it would draw a line under the scandal, which has been going on for far too long and amounts to a deep injustice.