Martin Lewis is urging the UK Government to find "any and all solutions" to free mortgage prisoners following a new report by the London School of Economics and Political Science (LSE). The report, the third and final in a series, is funded by a total private donation of almost £60,000 by the consumer champion and commissioned by MoneySavingExpert (MSE).
Some mortgage prisoners have been trapped on high rates since the 2008 financial crisis, however, the report has proposed solutions to help borrowers eventually remortgage with active lenders. Borrowers entered into loans with lenders that subsequently failed and they have often been rejected when applying for cheaper mortgages because they do not meet toughened borrowing criteria brought in following the crisis.
Many have loans that were sold by the UK Government to ‘closed book’ inactive lenders, often investment companies that are not regulated by the Financial Conduct Authority (FCA) to lend new mortgages, making it difficult for them to move to cheaper rates.
Mortgage prisoners have suffered mental health as well as financial consequences. Groups representing mortgage prisoners have told MoneySavingExpert.com that some people have even taken their own lives.
The new report suggests introducing free comprehensive financial advice for mortgage prisoners.
It also suggests UK Government equity loans along the model of Help to Buy, interest-free for the first five years.
This could involve an equity loan for a maximum of 40 per cent of the value of the property in London, and 20 per cent elsewhere, which could be used to pay down the mortgage and other existing debt.
There could also be a UK Government guarantee for active lenders to offer borrowers new mortgages, helping borrowers to find loans in the mainstream market.
The LSE report estimates the net overall cost of the programme could be between £50 million and £347 million over 10 years, depending on take-up.
Commenting on the final report, 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.
"When we put solutions to the Treasury in the past, it said it wanted to look at them, but couldn't as they weren't costed. Now, having fought tooth and nail to get some of the data needed from official institutions, it is costed.
“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.”
The founder of MoneySavingExpert.com added: “I hope the Treasury lives up to its past promise to investigate at speed and uses this report as a springboard to find any and all solutions to free mortgage prisoners."
MoneySavingExpert said the report is being shared with the Treasury and the FCA.
In the past year, near-monthly rate rises have seen some mortgage prisoners' rates leap from 4.5% to as much as 8.29%, the website said.
Rachel Neale, from the UK Mortgage Prisoners group, which campaigns for victims of this mortgage scandal, said: "The severe harm already endured for over a decade, compounded now by 10 consecutive rate rises, means time is not a currency mortgage prisoners have. The proposed solutions need to be considered in detail, and urgent action is required now before more homes and lives are lost."
Kath Scanlon, 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."
There are 195,000 households in closed mortgage books and/or who had mortgages now owned by firms not regulated by the FCA.
You can read the full report online here.
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