It was announced this week that a group of mortgage prisoners had opened legal proceedings against TSB over its treatment of them after the lender had purchased their home loans, including allegedly charging a higher standard variable rate (SVR) than that facing regular TSB borrowers.
The UK Mortgage Prisoners group told Mortgage Solutions that urgent action was needed to avoid a sharp increase in repossessions, particularly given the cost of living pressures at the moment.
Brokers encouraged the uptake of these products
The UK Mortgage Prisoners group has claimed that the FCA has admitted it can do no more without government action, essentially passing responsibility onto the Treasury.
Rachel Neale, lead campaigner for UK Mortgage Prisoners, said that this “blame culture must end”, adding: “The Treasury citing self-certification, interest-only or high loan to value mortgages as the reason for this crisis neglects the historical context of high and rising property values and a marketplace where high street lenders and brokers actively encouraged the uptake of these products.”
Neale also warned that in the context of the current cost of living crisis there will be “a tsunami of repossessions coming down the line” unless the Treasury acts now.
She added: “Not only will such urgent unprecedented intervention alleviate lasting harm to UK families, including the elderly and disabled, it will save the taxpayer in emergency accommodation costs, and prevent additional strain on other services in a context of stress on mental health services and lack of social housing to accommodate people where homelessness has become the final option.”
According to the group, a solution could include capping the margins on standard variable rates, as well as the introduction of a ‘fair mortgage product’ which prisoners could remortgage onto.
Sad state of affairs
Paul Neale, mortgage and equity release specialist at Missing Element Mortgage Services, said that the situation with mortgage prisoners was “a state of affairs”, agreeing that more needed to be done to help those stuck on a lender’s SVR.
He continued: “Not only that we are seeing more and more people having to take later life lending who have taken an interest-only mortgage when it is now coming to the end of their term. With lower or pension incomes, they are failing affordability, so the only options they have are to sell or take a lifetime mortgage.”
A lack of motivation
Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, noted that more lenient affordability rules had been put in place for mortgage prisoners, as well as special products from lenders, in order to help them remortgage.
He added: “The owners of these loans were also made to write to all their customers to advise them of this by the FCA. However, only very few have, to date, reached out to new lenders and taken up this route to move their mortgage.”
Taylor-Barr suggested there were many reasons for this, such as an adverse credit history making it difficult to qualify for new deals or not being able to switch a current interest-only deal to meet a new lender’s requirements.
“The most common one is likely that the mortgage balance is simply quite small – so even though interest rates are high and have become even higher, the real world pounds and pence of that increase is not great, so therefore the motivation to move is simply not there,” he continued.
Is there such a thing as a mortgage prisoner?
Lewis Shaw, founder of Shaw Financial Services, argued that it was incorrect to label these borrowers as mortgage prisoners.
“There are people that chose to take out loans that were either self-cert and often too large to manage, but they still proceeded, have had a drop in income and can’t remortgage elsewhere or borrowed more than the value of their property and may still be in negative equity,” he added.
Shaw suggested that mortgage prisoners are guilty of a “sense of entitlement”, since they could sell their property and “release themselves from this prison cell if they wish”.
He added: “As far as I am aware, no one gets held to ransom and told to take out a mortgage they can’t afford; people make choices and have to live with the consequences of those choices because they are responsible.”
