"'[T]here is no single solution that can help all mortgage prisoners'"
Funded by Martin Lewis of Money Saving Expert, the report was compiled by a researching team comprising academics, former senior mortgage-industry professionals, and an expert in the analysis of consumer harm.
The aims of the research were to identify the negative effects of being a prisoner for borrowers themselves and the wider economy, and to identify potential measures that could help prisoners - particularly those left out by the FCA’s actions to date. As of March 2012, the FCA estimated that about 45% of all borrowers with loans taken out since 2005 could become prisoners (FSA 2012).
The report explored the various ways in which consumers are affected by being mortgage prisoners, including direct effects - such as paying high interest rates or difficulty remortgaging - as well as indirect effects, such as health problems as a result of debt.
While acknowledging that 'there is no single solution that can help all mortgage prisoners', the report concludes by setting out some of the possible ways forward. It argues that, as consumers' circumstances vary, there should be wider variety of solutions available, as well as the remedies already in place, and that the goal of interventions should be to reduce customer harm. In practice, this might mean preventing defaults, mitigating their overall debt difficulty, and keeping people in their homes (even if no longer as owner-occupiers).
Some of the proposed measures include government equity loans (particularly for those with high LTVs or interest-only loans); mortgage rescue, allowing borrowers for whom a mortgage is unsustainable to remain in their homes as tenants; partial write-offs in some circumstances; and capping SVRs for borrowers on closed books. Regardless of which measures are taken, the report recommends that better information and signposting be made available (and funded) for all borrowers.
The report concludes:
"The Treasury should aim to draw a line under the mortgage prisoner problem, which was born out of the financial crisis more than a decade ago. Only it can fully calculate the benefits and costs of remediating the situation and then take action.
"Finally, any solutions devised to address the mortgage-prisoner problem will almost certainly have wider applicability in coming months and years, as the economic damage caused by coronavirus affects more borrowers and puts them in similar positions."
A BSA spokesperson welcomed the report, adding:
“This report takes the bull by the horns and explores government actions that may help some of the many mortgage prisoners for whom the FCA modified affordability rules won’t work. The LSE report has echoed our consistent call for the FCA perimeter to be extended to closed mortgage books and we welcome recognition that Government has an important role to play."
