Question to the HM Treasury:

To ask the Chancellor of the Exchequer, with reference to the Financial Conduct Authority's Mortgage Prisoner Review published on 29 November 2021, what assessment he has made of the implications for his policies of the findings of that report.

In November 2021, I laid before Parliament a review on the issue of mortgage prisoners conducted by the Financial Conduct Authority (FCA). This review found that there are 47,000 mortgage prisoners who might benefit from switching to a new mortgage deal but are considered too high risk to do so, despite being up to date with payments.

The review makes clear that the reasons mortgage prisoners are unable to switch are complex and varied, including a high proportion of interest-only mortgage borrowers with no clear repayment plan and pre-financial crisis legacy issues such as borrowers self-certifying their income on their loan applications. A comprehensive understanding of the circumstances of mortgage prisoners is therefore crucial in progressing work and the FCA’s review provides the key insight necessary to facilitate this. Following this and previous interventions to help borrowers switch, the Government is working with industry to determine if any further solutions that can be found to help mortgage prisoners.

This further work must consider the practicality of solutions and their effects on the wider mortgage market, including the resilience of firms and fairness to other borrowers. A cap on the Standard Variable Rates (SVRs) charged by inactive firms would be an unprecedented market intervention and would undermine the principle of risk-based pricing which underlies the mortgage market. It would entail risks to the financial stability of firms which would be unable to vary their rates in line with their costs of funding and would be deeply unfair to borrowers in the wider mortgage market who pay similar rates to mortgage prisoners. It is worth noting that the SVRs charged by inactive firms are in line with those paid by borrowers in the active market.

The Government continues to examine what further practical and proportionate solutions existing to help mortgage prisoners which do not pose unacceptable financial stability risks or are unfair to other borrowers in the mortgage market.