How to free the UK’s 250,000 mortgage prisoners
The government should ‘draw a line under the mortgage-prisoner problem’, according to a new report from LSE London and funded by MoneySavingExpert.
It said that mortgage prisoners remain trapped paying relatively high interest rates but are unable to remortgage. They borrowed from lenders who are no longer active – such as Northern Rock or Bradford & Bingley—and these ‘closed book’ loans were sold to investors after the global financial crisis.
Many also find it difficult or impossible to take out new loans with active lenders because they don’t meet current, tighter lending criteria.
While the regulator has put it place measures to help some mortgage prisoners, not all can benefit and remain stuck, meaning further support is needed.
‘Forgotten victims’ of the credit crunch
The new report, Releasing the mortgage prisoners, was funded by Martin Lewis of MoneySavingExpert.com (MSE), and sets out the range of circumstances facing mortgage prisoners and identifies solutions so more of them can reduce their payments and/or restructure their mortgage arrangements and keep their homes.
Lewis said: “Mortgage prisoners are the forgotten victims of the 2008 financial crash. The Government at the time chose to bail out the banks, but unfairly – immorally – hundreds of thousands of their victims were left without adequate help, trapped in their mortgages and the financial misery caused by it. And they have been forgotten ever since.
“Speed is necessary now, as coronavirus has torn through people’s livelihoods. But for people whose finances and freedom have already been destroyed for more than a decade, they had already met breaking point – they are now defeated. Nobody should underestimate the detriment to people’s lives and wellbeing if the Treasury doesn’t act, and act soon. Intervention can and will save lives.”
How to help mortgage prisoners
The report recommends that mortgage prisoners should receive better information about who owns their mortgages, the regulatory status of those owners and consumer protections available to the prisoners.
The government should also fund independent debt debt-counselling organisations to provide financial advice (rather than just mortgage advice) and signpost the services of such organisations to prisoners.
It also sets out other potential measures to be fully explored, including:
1. Government interest-free equity loans to bring down loan-to-value ratios for borrowers, enabling them to remortgage to a new lender.
2. Allowing those with Northern Rock’s ‘Together’ loans to decouple the mortgage and secured loan elements of their scheme, enabling borrowers to potentially remortgage to a new mortgage lender.
3. Enabling partial loan write-offs by investors plus government equity loans to reduce payments significantly and also allow some borrowers to remortgage.
4. Allowing mortgage prisoners for whom mortgages are financially unsustainable to remain in their homes as tenants, with the homes sold to housing associations.
5. Bringing all owners of closed books within the FCA’s regulatory perimeter to enable greater oversight of their practices.
6. Potentially capping very high Standard Variable Rates (SVRs) on closed book loans.