A new report funded by high profile consumer champion Martin Lewis says the government must do more to help ‘mortgage prisoners’.
These are existing home owners who are unable to remortgage to a cheaper deal with another lender because they don't meet strict borrowing criteria brought in after the 2008 financial crash – even though they're generally keeping up with repayments and would often be paying less if they switched.
Lewis’s consumer organisation MoneySavingExpert has championed this cause for five years.
The new report - published by the London School of Economics and funded by Lewis himself - claims that mortgage prisoners have higher rates of physical and mental health problems than the average borrower, and are up to 40 per cent more likely to default as a result of Coronavirus.
Lewis says that while the Financial Conduct Authority has adopted policies to help mortgage prisoners, it has now reached the limit of its powers in this area. This means only the government can, and should, free mortgage prisoners.
"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” says Lewis.
"The Prime Minister has touted the idea of subsidising five per cent deposit mortgages for first-time buyers. Alongside that, there is a moral responsibility to release money to free mortgage prisoners from their penury …
"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.”
The LSE/Lewis report recommends, amongst other things:
- Interest-free government equity loans to bring down some mortgage prisoners' loan-to-value ratios and allow them to remortgage. This is similar to the Help to Buy scheme for first-time buyers;
- Mortgage rescue where homeowners whose mortgages are financially unsustainable are able to stay living in their homes as tenants. The property would be sold to housing associations with a buy-back option later;
- Bringing all "closed book" mortgages under the oversight of the FCA. Currently, owners of "closed book" mortgages - those borrowing from a firm that no longer lends to new customers - are outside the regulator’s reach.