02 March 2023 , 10:39
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Martin Lewis has called for urgent action to help 200,000 mortgage prisoners who are trapped paying “inescapable” rates.
Mortgage prisoners are homeowners who have been trapped on high rates since the 2008 financial crisis.
A report today details how consecutive interest rate rises have seen some prisoners' mortgage rates soar from 4.5% to as high as 8.29%.
Groups representing mortgage prisoners told MoneySavingExpert that some borrowers have even sadly taken their own lives.
Mortgage prisoners took out loans before the 2008 financial crisis - when lending rules weren't as tight - with lenders that went on to fail such as Northern Rock and Bradford & Bingley.
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Many of their mortgages were taken into Government ownership and then moved to holding company called UK Asset Resolution (UKAR) which later sold them off.
The report goes on to detail how the Government has made a whopping £2.4billion in profit by selling mortgages from collapsed lenders to investment firms.
Many of the loans were sold to firms that are not mortgage lenders and are not able to offer them cheaper products - leaving borrowers trapped on uncompetitive rates.
To make matters worse, mortgage prisoners are often rejected when they apply for cheaper mortgages elsewhere because they now don't meet strict borrowing criteria introduced in 2014 following the crash.
The London School of Economics and Political Science (LSE) third and final report - funded by Martin Lewis - has laid out various solutions to try and help mortgage prisoners.
They include:
Free comprehensive financial advice for all prisoners (required for any borrower who might go on to access other solutions).
Interest-free equity loans to clear the unsecured element of Northern Rock's "Together" loans.
Government equity loans on the model of Help to Buy, interest-free for the first five years.
Fallback option: A Government guarantee for active lenders to offer prisoners new mortgages.
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The report estimates these solutions could cost between £50million and £347million over 10 years.
Martin Lewis said: "This report lays out starkly that the state sold these borrowers into poverty, knowing it could cause them harm, and made billions doing it. The result has destroyed lives.
“People have been left in financial, physical and mental misery, exacerbated by the pandemic and cost of living crisis ripping through their already dire situations.”
He continued: “The Government has a moral and financial responsibility to mitigate some of the damage done.
“Mortgage prisoners are the forgotten victims of the financial crash. The banks were bailed out at the expense of these borrowers.”
Rachel Neale, from the UK Mortgage Prisoners group, which campaigns for victims of this mortgage scandal, said: "We thank Martin Lewis for the funding of this report.
“It reveals that Treasury made £2.4bn surplus out of the sale of our mortgages, whilst mortgage prisoners continue to be profiteered from.
“The report also confirms what UK Mortgage Prisoners has always known, that harm and detriment to borrowers caused by the sale of these mortgages was disregarded by Government as far back as 2009 when it opted not to act to protect borrowers.
Kath Scanlon, Distinguished Policy Fellow at LSE London and lead author of the report, said: "Since our research began in late 2019, the situation facing mortgage prisoners has become dramatically more difficult.
“Rises in interest rates and the cost of living pressures occasioned by the conflict in Ukraine have made it more urgent to address the issue. We hope that our report contributes to finding real solutions."
A spokesperson for HM Treasury said: "We are open to practical and proportionate solutions to help mortgage prisoners, working with the Financial Conduct Authority and industry to carefully consider all proposals put forward."
The Financial Conduct Authority said: "We recognise the difficult circumstances faced by affected mortgage borrowers, who cannot switch and could benefit from doing so.
"We removed regulatory barriers to switching and set clear expectations for firms to support borrowers in financial difficulty and the fair treatment of vulnerable customers."