The Government must help mortgage prisoners now
"Being a mortgage prisoner has been hell to me, you worry about losing your home, you can't plan on starting a family and moving forward with your life. The whole experience affects your mental wellbeing and this has now got to stop." – MSE user.
MoneySavingExpert.com has told the Financial Conduct Authority that its plans to help mortgage prisoners are welcome – but hugely insufficient. The issue, though, is that the regulator has only got so much power, which means the Government must now step in where the regulator can't.
Mortgage prisoners feel like they've been given a life sentence of misery. Years ago, they bought their homes, normally at some point before the financial crash. These are people who took out home loans perfectly within the rules at the time, signing up to contracts available on the high street.
Then the financial crash happened, and everything changed. In particular, affordability rules for getting a new mortgage got stricter. This makes sense generally, but when it applies to remortgaging it can cause problems. In theory, the rules don't apply if you can switch to a new deal with your existing lender.
The toughened-up rules have had a side-effect of telling many people, nonsensically, that they can't afford a cheaper mortgage. They've been moved on to their lender's expensive standard variable rate (SVR), but no longer pass the bar to get a new mortgage elsewhere, even though it would be cheaper – potentially hundreds of pounds a month cheaper.
The Financial Conduct Authority (FCA) is now proposing help… but only for some. Those who aren't in arrears and who are generally attractive to other lenders should be able to get another mortgage elsewhere, by being tested on the common-sense premise that if they are already paying more, they can afford to pay less.
Mortgage prisoners are in despair
To better understand the reality of how many mortgage prisoners may or may not be helped by the FCA's proposal, we carried out the first large-scale survey of mortgage prisoners.
Some of these are stuck with high street lenders everybody has heard of, but it seems most used to be customers of long-gone lenders such as Northern Rock and Bradford and Bingley.
After these firms went under, their mortgages ended up being owned by the Government. Then many of these loans were sold on again – but this time, to unheard-of investment firms, which don't have to answer to the financial regulator. They also don't offer new products, so it's impossible for them to offer customers on the SVR a cheaper deal. Our survey found 58% of respondents were with inactive lenders such as these.
We also found that most had taken out their mortgage before 2008 (77% of 206 respondents), and many seemed to be financially vulnerable in some way.
Here are a few examples of what mortgage prisoners told us:
"It makes me depressed – I feel I have let my family down immensely – self-loathing and days of complete darkness… I have been on and off medication for 10 years. Being a mortgage prisoner has taken away so much of my inner being... I am not the person I was – I am beat."
"Had a nervous breakdown because I couldn't cope and my mum had to look after the children."
"It is a rock around my neck... It cannot be fair or reasonable to transfer a mortgage to an inactive lender, hike up the SVR and make it impossible... to find another deal."
The FCA’s proposals are good, but they’re not enough
In March this year the FCA published plans to help mortgage prisoners. This followed several years of campaigning on the issue by Martin Lewis and MSE. The previous big milestone had been in 2018, when the FCA published research suggested and facilitated by MSE, in which it estimated there are 150,000 mortgage prisoners.
Finally, we thought, there'll be a resolution. But the details revealed that there is only so much the regulator can do to help. In fact, its own numbers reveal as few as 2,000 people could be helped by its plans. The fact that many of these loans are now owned by unregulated firms is the dead end that it keeps reaching.
But at least for those who will be helped, this will be vital relief.
The FCA's plans to tell mortgage prisoners about a potential fix for the issue are lacking, however – so we've asked it to seriously boost these to make sure all those who might be able to escape their mortgage prison with these new rules are able to. We at MSE are happy to do what we can to help improve these communication plans.
Read MSE's consultation response submitted to the FCA.
So now it’s time for the Government to step in
This is a national problem, it's causing misery, and the Government has been no bystander.
First, the Government must immediately stop selling any more mortgages to unregulated firms. This is about a change in practice, not a change in law. It should be easy to do – it must stop taking money while making the problem worse.
Then, the Government needs to look again at the problem, and accept responsibility for finding a solution for those who won't be helped by the FCA. This could mean a change in law is needed. Where the FCA doesn't have the power to intervene, the Government must.
Here's a flavour of what MSE has been doing over the years to campaign for justice for mortgage prisoners...
In 2015, Martin met key figures in the EU, the Treasury and the FCA, which are the organisations responsible for UK mortgage regulations.
In 2016, then Chancellor George Osborne wrote to mortgage lenders following a meeting with Martin about the plight of mortgage prisoners.
However, Martin said the Chancellor's letter only addressed "a fraction of the problem".
In May 2018, the FCA found 150,000 consumers in the UK were mortgage prisoners. MSE contributed to the regulator's discovery by suggesting and helping facilitate a survey of mortgage brokers. The survey backed up the regulator's findings from analysing mortgage data, and the FCA thanked MSE for its contribution.
The regulator said it was able to help 30,000 of the mortgage prisoners it identified – by forcing the lenders to help their 'imprisoned' consumers if needed. But the other 120,000 'prisoners' have had their mortgages bought by firms that aren't authorised to lend, and so the FCA has no power to make them do anything.
In October 2018, Treasury Minister John Glen admitted that mortgage prisoners "need to be dealt with" at an event run by MoneySavingExpert at the Conservative Party Conference.
The minister also expressed agreement with Martin's call that an affordability check for someone with an existing mortgage – if it's at a cheaper rate and they're not borrowing more – should be: 'Have you repaid and not defaulted?'
In March 2019, the FCA launched a consultation detailing its solution to free mortgage prisoners.
In July 2019, MSE submitted its response to the FCA consultation, welcoming it, but calling for improvements. Crucially, MSE called on the Government to step in and help those mortgage prisoners beyond the reach of the regulator.