The study aims to propose policy solutions which could help release the borrowers who are currently trapped with closed book, inactive or unregulated lenders.
It will include a feasibility study of solutions, such as subsidising competitive lenders to enable them to offer mortgage prisoners a better deal.
Last month the FCA published research which showed only around 14,000 of the 250,000 borrowers were likely to benefit from its affordability assessment changes.
However, this LSE research will study the entire cohort of 250,000 borrowers, Money Saving Expert confirmed.
“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 firm said.
Treasury ‘frustrating’ borrowers
Along with the FCA’s changes to affordability assessment rules, the mortgage prisoners have been calling for government to help their situation.
Last month economic secretary to the Treasury John Glen appeared to offer some hope by suggesting HM Treasury was open to extending the FCA’s reach to include the lenders affected.
However, following a “frustrating” meeting with Glen last week, the group of borrowers delivered a letter to Number 10 Downing Street calling for prime minister Boris Johnson to take action.
Last year it was revealed that in 2013 Sajid Javid, then economic secretary to the Treasury and now chancellor, blocked regulation changes that could have significantly helped the trapped borrowers.
Government to blame
Martin Lewis, founder of Money Saving Expert, said it was 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,” he said.
“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.”
Lewis added that the government had spent billions bailing out banks but had done nothing to help those locked into high-rate mortgages, and had added to their pain by selling more loan books to inactive or unregulated lenders.