The study aims to propose policy solutions which could help release the borrowers who are currently trapped with closed book, inactive or unregulated lenders.

So-called mortgage prisoners are unable to move to a more affordable home loan despite being up to date with their mortgage payments. They are trapped because either they took their mortgage out before the financial crisis and now do not meet stricter lender criteria introduced after the crash, or their lender is inactive or unauthorised to offer new loans.

The research will include a feasibility study of solutions, such as subsidising competitive lenders to enable them to offer mortgage prisoners a better deal.

In October, the FCA made it easier for trapped borrowers to switch to a cheaper deal by letting lenders use more relaxed affordability rules for customers who met certain criteria. However, the FCA said only around 14,000 of the 250,000 borrowers were likely to benefit from its affordability assessment changes.

“The aim is to find evidence-based policy solutions, which will push the government to step in and rescue mortgage prisoners that the financial regulator can’t reach,” Money Saving Expert said.

Government to blame

Martin Lewis, founder of Money Saving Expert, said it was time the government accepted the responsibility to find a solution for these vulnerable consumers.

“Its failure to do so is short-sighted. The cost of mortgage prisoners doesn’t just fall on the individuals, it falls across society,” he said.

“The impact of leaving people locked into unaffordable mortgages can be catastrophic. It can leave them dependent on the state, with little savings for old age, and even adding to NHS costs with the hideous and disastrous mental health impact that can occur when you destroy someone’s financial life choices.

“So over the next few months, we’re asking the LSE to explore a range of cost-effective, practical policy solutions the government could employ to rescue mortgage prisoners – which we can then take to the Treasury.”

Lewis added that the government had spent billions bailing out banks but had done nothing to help those locked into high-rate mortgages, and had added to their pain by selling more loan books to inactive or unregulated lenders.