The debate over the treatment of ‘mortgage prisoners’ has been back on the agenda this week, with a campaign group representing trapped borrowers warning that the proposed sale of the UK Asset Resolution (UKAR) books will lead to more people being unable to move on from expensive rates.
Intermediaries have called for lessons to be learned from the situation, including limiting the sale of such loan books to only fellow lenders.
David Sheppard, managing director at Perception Finance, argued it was not plausible to force a lender to offer a mortgage where there was no equity in the property, or any other situation that stands outside of their normal criteria.
However, he suggested that there should be controls over firms who opt to purchase back books from the likes of UKAR to ensure that they have a “sensible rate range” available, which may mean that they can offer lower rates if the borrower is prepared to commit to remain with that lender for a certain period of time.
“If that was a mandatory requirement for any mortgage sale then it would help clean up this side of the mortgage market that is in desperate need of oversight,” he added.
James Mole, independent financial adviser at Gingko Independent, said he had clients trapped with non-lenders before, and said he found the situation “scandalous”.
He continued: “My clients ended up paying extortionate rates for a fair few years before we finally found a way to get them off. If the loan was sold to a currently lending company, they would have been able to do a product transfer and saved many thousands of pounds. In my opinion the FCA needs to move quickly to outlaw this kind of behaviour.”
Mole added that as UKAR was set up to maximise value for taxpayers, this inevitably in some cases means a worse deal for individual borrowers.
“I can’t help but feel the UKAR are not treating customers fairly, a key principal of the FCA, which is something they should look at closely,” he concluded.
We need to learn for the future
Andy Wilson, director at Andy Wilson Financial Services, said he also had a client in a similar position, which had left them “trapped on an interest-only basis”, meaning they had missed out on 12 years of possible debt reduction, essentially simply because Northern Rock had gone out of business.
He continued: “By allowing asset management companies to buy the loan book instead of regular lenders, they smothered any hope for the borrowers who became prisoners in this way. Although the events were unprecedented at that time, we do need to learn for the future. Ultimately the failings were in no way attributable to the borrowers themselves who have been the real victims in the proceedings.
“In the future, should a mortgage lender fail, if the Government steps in it needs to try and sell the loan book to an active lender who will manage the accounts as they would their own borrowers.”