"We’re asking the LSE to explore a range of cost-effective, practical policy solutions the Government could employ to rescue mortgage prisoners"
MoneySavingExpert has instructed the London School of Economics and Political Science (LSE) to look for new solutions, funded by a five-figure donation from the consumer site’s founder and chair Martin Lewis.
The aim is to find evidence-based policy solutions, which will push the Government to step in and rescue mortgage prisoners that the financial regulator can’t reach.
The FCA recently relaxed affordability checks for new customers who meet certain criteria and want to remortgage. However, it later admitted that just 14,000 - or 5.6% - of mortgage prisoners will be both likely to meet commercial lending criteria and stand to make a meaningful saving from the new rules.
Last week, Economic Secretary to the Treasury, John Glen, indicated he is open to extending the FCA’s remit to further help these borrowers switch mortgage products.
Martin Lewis, founder of MoneySavingExpert, said: “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 into 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. I won’t pre-empt their work, but it’ll include a feasibility study of solutions – for example, subsidising competitive lenders to enable them to offer mortgage prisoners a decent deal. Then I hope where possible that can be compared to the cost to the economy of doing nothing – and leaving mortgage prisoners locked in for life or losing their homes.
“It’s worth remembering that the Government spent billions bailing out one set of victims of the financial crash – the banks. Yet it’s done nothing to help another set – those locked into high-rate mortgages. In fact, it’s actually responsible for some of their pain, selling the mortgage customers of former lenders like Northern Rock and Bradford & Bingley to unregulated, inactive lenders who have no other mortgage products, leaving these mortgage prisoners with no option other than to try to afford to keep paying obscene rates.”
Jackie Bennett, director of mortgages at UK Finance, commented: “UK Finance is working with a wide range of banks, building societies and specialist lenders to help them develop new products for borrowers with inactive firms who are eligible under the Financial Conduct Authority's revised affordability criteria. We are also actively considering other practical ways in which these customers could be helped.
“The Money Saving Expert research will build on these industry-wide efforts by providing further valuable insight into potential solutions for these customers.
“We will continue to work closely with members, the FCA and the government to help find solutions for as many customers as possible.”
