fbpx

Whitton House
20 Market Place
Newark
NG24 1EA


Contact us today:
01636 674455

Mortgage Prisoners: A light at the end of the tunnel?

Mortgage Prisoners: A light at the end of the tunnel?

An update from BB Mortgages

By James Carpenter

“I believe in excellent service and flexible appointment times.”

James Carpenter

Mortgage Prisoners: A light at the end of the tunnel?

Economists estimate that there are around a quarter of a million mortgage prisoners in Britain at the moment. Many believe that this is largely the fault of the 2008 financial crisis, with Martin Lewis saying that:

“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.”

Finally, now it seems that thanks to research and campaigning, there may be a light at the end of the tunnel for those who are trapped in a mortgage that they can’t afford but also can’t escape…

What is a mortgage prisoner?

A mortgage prisoner is someone who wants to re-mortgage but is trapped in their current deal. This can happen for a number of reasons but is usually a result of either the fall in house prices which happened in 2008-2009 and left a lot of people with negative equity in their homes or because of stricter affordability rules which the FCA (Financial Conduct Authority) introduced in 2014.

FCA support for mortgage prisoners

The FCA have done what they can to make things fairer for people who are trapped in mortgages they can’t afford. They have amended their responsible lending rules to allow lenders to base their decision on your payment history rather than on affordability. However, this has had limited impact and many believe that more needs to be done.

What do mortgage prisoners need right now?

Recent research by the LSE (London School of Economics) has suggested a number of ways in which the government can provide additional support to mortgage prisoners. It suggests that two of those measures should be put in place immediately:

Better information

The LSE suggest that borrowers should be given better information about their options and who owns their debts, so that they can make more informed decisions on how to manage their mortgage choices.

Debt advice

They have also recommended that the government provide better signposting and funding for debt counselling and advice for people who have found themselves trapped in a mortgage that they can’t afford.

 

6 Potential solutions for mortgage prisoners

The LSE paper also suggested 6 longer term strategies that could support people who are trapped in mortgages they can’t afford.

  1. Government equity loans

Many mortgage prisoners have interest-only mortgages, meaning they’re only paying off the interest and not the balance of the debt each month. This in turn means they won’t have built up equity in their homes, so the loan-to-value ratio (LTV) of any new mortgage they apply for will often be too high for a lender to accept. This problem could be solved with an equity loan from the government which could reduce the LTV and so make it easier to re-mortgage.

  1. Partial write-offs

When someone is in arrears with their mortgage, or has negative equity, then it’s almost impossible for them to re-mortgage. For this reason, the LSE suggest that the government provide incentives for lenders to write-off all or parts of mortgage prisoners’ debts.

  1. Remove ‘Together loans’

The Together loan was a hybrid product from Northern Rock before the 2008 crash. It gave customers a high LTV mortgage and an unsecured loan at the same time. Customers paid these back in a combined monthly payment. The problem came when people switched their mortgage to a different provider. The unsecured loan’s interest rate shoots up to what many have seen as a punitive amount. The LSE London research suggests that the government investigate a method to decouple the loan and mortgage elements in a way that customers can afford. 

  1. Housing Association buy-out

In order to protect mortgage prisoners from eviction when they can no longer afford their mortgage, the research recommends that they could stay in their homes as tenants, with housing associations buying their properties. People  could then have the option to buy their homes back at a later date.

  1. Increased FCA regulation

Closed book mortgages are loans which were borrowed from companies who are no longer lending and so no longer fall within FCA regulation. In many cases, these customers find it very difficult to swap to a new deal and so are stuck paying expensive rates. Bringing these lenders under FCA regulation would give the FCA greater authority to ensure customers are treated fairly.

  1. SVR (Standard Variable Rate) Caps

These types of closed book mortgages generally come with very steep SVR’s and campaigners have been saying for a long time that bringing in SVR caps would help to reduce the number of mortgage prisoners in the UK.

Although, the LSE research suggested that the difference between the high SVRs of closed book mortgages and those that customers would be able to switch to, would be minimal for most customers.

 

Next steps for mortgage prisoners

If you’re currently trapped in a mortgage that you can’t afford, then it’s important to get some support before your debts become unmanageable.

Charities like StepChange can offer you free and impartial advice to help you to manage your finances and your debts.

It’s also worth chatting to a Mortgage Adviser who can look at your specific circumstances and let you know what options might be available to you to help you reduce your monthly mortgage payment.

Here at BB Mortgages, we offer free consultations with our expert advisers, so don’t keep struggling alone and let us help!

 

James Carpenter,

Director,

BB Mortgages

Book a FREE appointment;

Just select your time and one of our advisers will contact you to arrange the rest.

go back to all blogs

Book a FREE Consultation!

We'd love to chat to you about finding you the perfect mortgage for your needs. Click below to book your free consultation with one of our expert advisers.

Book a Consultation

Ellen King

Absolutely delighted with the service we received from Dean. The advice we received was timely and thorough; the service provided went above and beyond our expectations compared to other mortgage advisors we have used in the past and the whole application process was made straightforward and stress free. Overall, an excellent value for money service that I would highly recommend.


Ellen King

BB Mortgages
2019-09-04T15:53:10+01:00

Ellen King

Absolutely delighted with the service we received from Dean. The advice we received was timely and thorough; the service provided went above and beyond our expectations compared to other mortgage advisors we have used in the past and the whole application process was made straightforward and stress free. Overall, an excellent value for money service that I would highly recommend.

Miss Knight

We would like to take this opportunity to thank you for your efforts in making it possible for us to purchase our first property.  You have been brilliant and your services have been friendly, helpful, swift and professional.  We cannot thank you enough and it has been an absolute pleasure working with you.  What is known to be a stressful time has been very smooth and I have yourselves to thank for this.


Miss Knight

BB Mortgages
2016-03-22T17:24:36+00:00

Miss Knight

We would like to take this opportunity to thank you for your efforts in making it possible for us to purchase our first property.  You have been brilliant and your services have been friendly, helpful, swift and professional.  We cannot thank you enough and it has been an absolute pleasure working with you.  What is known to be a stressful time has been very smooth and I have yourselves to thank for this.

Mr L

Mr L hadn’t sold his house but had found the house of his dreams, we arranged a mortgage that allowed him to buy his new house without selling and a mortgage that was flexible enough for him to pay a large amount off when he sells his house.

BB Mortgages
2016-09-13T12:38:09+01:00
Mr L hadn’t sold his house but had found the house of his dreams, we arranged a mortgage that allowed him to buy his new house without selling and a mortgage that was flexible enough for him to pay a large amount off when he sells his house.

Miss G

Miss G sold her house and had found a new house, it all looked straight forward but she had a historical bankruptcy which meant lots of lenders were declining her. We found her a mainstream high street lender that would offer a mortgage even with her previous bankruptcy.

BB Mortgages
2016-09-13T12:43:22+01:00
Miss G sold her house and had found a new house, it all looked straight forward but she had a historical bankruptcy which meant lots of lenders were declining her. We found her a mainstream high street lender that would offer a mortgage even with her previous bankruptcy.

Mr W

Mr W works abroad but wanted to buy a buy to let property, most lenders will require him to own and live in in a mortgaged property in the UK, however we found a lender that would lend at sensible interest rates for a new buy to let purchase.

BB Mortgages
2016-09-13T12:48:10+01:00
Mr W works abroad but wanted to buy a buy to let property, most lenders will require him to own and live in in a mortgaged property in the UK, however we found a lender that would lend at sensible interest rates for a new buy to let purchase.

Mr C

Mr C wanted to buy a student house in Lincoln via a limited company to take advantage of the income tax benefits of this. He spoke with other brokers and high street lenders all of which said it wasn’t possible. We found a building society who specialise in this with sensible fees and interest rates.

BB Mortgages
2016-09-13T12:49:06+01:00
Mr C wanted to buy a student house in Lincoln via a limited company to take advantage of the income tax benefits of this. He spoke with other brokers and high street lenders all of which said it wasn’t possible. We found a building society who specialise in this with sensible fees and interest rates.
0
0
BB Mortgages

We loved this!💙⠀There has never been a better time to support small/local businesses...⠀#newarktogether ... See MoreSee Less
View on Facebook