A new report has been published by the London School of Economics and Political Science (LSE), proposing costed solutions to help those trapped in the ‘mortgage prisoner’ situation.
The report, funded by almost £60,000 in private donations from Martin Lewis and commissioned by MoneySavingExpert (MSE), is the third in a series and has been shared with the Treasury and the Financial Conduct Authority.
Mortgage prisoners have been struggling with high rates since the 2008 financial crisis. Many have loans that were sold by the state to ‘closed book’ inactive lenders, mostly investment companies that are not regulated to lend new mortgages, making it difficult for them to move to cheaper rates.
The LSE report, for the first time, includes indicative costings requested by the Government.
John Glen MP, Chief Secretary to the Treasury, has committed to reviewing solutions proposed in the LSE report, stating that proposals would be given “full consideration” as long as they met his three criteria: delivering value for money, fair use of taxpayer spending, and addressing risks of moral hazard.
Prisoners have been suffering financially, mentally, and physically for more than a decade, unable to escape unaffordable mortgages, which have had a devastating impact on many.
In the past year, near-monthly rate rises have seen some prisoners’ rates leap from 4.5% to as much as 8.29%.
Groups representing mortgage prisoners have told MSE that some have even tragically taken their own lives.
The Government has made £2.4bn from the sale of these loans. The LSE report finds that not only has it made back the cost of managing the sales, but it has also generated a £2.4bn surplus. In 2009, the Government acknowledged that selling these mortgages to inactive lenders had the potential to severely harm consumers, but no action was taken to prevent this.
The LSE report proposes solutions that would help prisoners eventually remortgage with active lenders, which are detailed in full in their third report.
These include free comprehensive financial advice for all prisoners, 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), and a fallback option: a government guarantee for active lenders to offer prisoners new mortgages.
The LSE report estimates that these solutions could cost between £50m and £347m over ten years, depending on take-up.
While the overall outlay would be £370m to £2.7bn, this is reduced to £50m to £347m net, as the government would hold some equity loans itself.
Martin Lewis, who funded the report and is the founder of MoneySavingExpert, 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.
“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.”
Rachel Neale, from the UK Mortgage Prisoners group, which campaigns for victims of this mortgage scandal, added: “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.
“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, 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.”
