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New funding for mortgage prisoner research

New funding for mortgage prisoner research

The research will look for solutions to help homeowners trapped on expensive mortgages.

Emma Lunn
Wed, 02/05/2020 – 09:17

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The research by the London School of Economics and Political Science (LSE) will look for solutions to help homeowners trapped on expensive mortgages. 

Its aim is to find evidence-based policy solutions, which will push the Government to step in and rescue the mortgage prisoners the Financial Conduct Authority (FCA) hasn’t helped. 

Martin Lewis is making a personal donation of £25,000 through his charitable foundation to help fund the study. 

What are mortgage prisoners?

“Mortgage prisoners” are homeowners who are unfairly trapped on an expensive mortgage, often with inactive lenders.

When these borrowers try to remortgage to cheaper deals they are often told they don’t meet affordability tests brought in after the financial crash – even though their new payments would be cheaper and they have not fallen behind on payments previously.

What is being done to help mortgage prisoners?

In May 2018, the FCA found 150,000 consumers in the UK were mortgage prisoners. The regulator said it was able to help 30,000 of these who were with lenders the FCA could force to help their trapped customers. But the other 120,000 borrowers had had their mortgages bought by firms who aren’t authorised to lend – so the FCA doesn’t have the power to make them do anything.

The FCA announced a “modified affordability assessment” last year for borrowers who meet certain criteria and want to remortgage. However, it says that many lenders haven’t been interested in implementing the new assessments.

In January 2020, FCA research found there were 250,000 people whose mortgages were with inactive or unregulated lenders. Of these, 170,000 were up-to-date with payments.

The cost of mortgage prisoners

Lewis says: “It’s time the Government accepted the responsibility to find a solution for these vulnerable consumers. Its failure to do so is short-sighted. The cost of mortgage prisoners doesn’t just fall on the individuals, it falls across society.

“The impact of leaving people locked in to unaffordable mortgages can be catastrophic. It can leave them dependent on the state, with little savings for old age, and even adding to NHS costs with the hideous and disastrous mental health impact that can occur when you destroy someone’s financial life choices.

“So, over the next few months, we’re asking the LSE to explore a range of cost-effective, practical policy solutions the Government could employ to rescue mortgage prisoners – which we can then take to the Treasury.”

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