The charity has called on closed mortgage lenders to stop passing the rise onto potentially vulnerable customers.
A spokesperson for UK Mortgage Prisoners said: “Closed, inactive mortgage books do not cost more to service today than they did yesterday and nor will they cost more to service tomorrow. It is not a commercial decision being made by these mortgage servicers but an unfair and immoral opportunity to profiteer further from people who are already vulnerable and living in poverty and yet UK Finance and the Financial Conduct Authority do nothing to help those affected most.”
She added it is immoral of the financial industry to push interest rates even higher for customers who are already sat on inflated interest rates of 4.38 per cent and above and remain unable to remortgage away from closed book deals.
The FCA’s mortgage prisoner review suggests roughly 195,000 borrowers remain on closed or inactive lender books, however, research from Hargreaves Lansdown out this month suggested that the real number of people trapped is likely to be closer to 100,000.
The Intermediary Mortgage Lender’s Association (IMLA) executive director Kate Davies said of the review the “wide variety of circumstances” suffered by mortgage prisoners means it is not straightforward for them to switch to a new deal.
She said: “We know from the findings that of the estimated 195,000 borrowers who have mortgages in closed books, there are many different types of cases. Some may be able to switch to a new product with the right support, but others either won’t be able to do so, or the benefits of switching would not be sufficient to justify doing so. Other borrowers’ finances may be in a poor state, in which case the regulator’s rules would not allow a new lender to approve a new deal for them.”
She added that whilst the FCA report provided great analysis of the issue it “does not push us closer to a solution” for these mortgage prisoners.
The charity as a whole supports the Home Ownership Protection Enterprise (HOPE), which provides a negotiation and support service between banks and their customers with the ultimate aim of preventing home repossessions.
Funds raised by the charity go towards a hardship fund for those in immediate danger of homelessness, offer access for families unable to make payments for heating or food or with mental health support.
Donate to the UK Mortgage Prisoner fund here – and here is a link for homeowners affected by the issues in this news story.
The “Polluter Pays” Bill uses the same principle as the law for contaminated land and would allow the government to pursue remediation and interim safety costs from responsible parties in the construction industry, such as developers and builders, rather than leaseholders or homeowners.
The bill divides buildings into two groups, those that did not comply to building regulation at the time of construction, and those that were compliant when they were built but are no longer compliant following Grenfell.
This means the bill does not have time limitations, unlike current law where people have six years from when the building is built to file legal action, which will allow more mortgage prisoners access to funds.
It also works in tandem with government levies and grants, which amount to £5.1bn, and permits emergency grants to those who are on the verge of bankruptcy.
Speaking to this publication, campaigner Steve Day, who is spearheading the bill, said: “Trust in building regulation has broken down. People don’t believe buildings are built safely, so what we are saying is instead of letting the construction industry off with a tax and levy that isn’t good enough for breaking building law, the responsible parties should be held liable.”
He said that this would benefit mortgage lenders as it would rebuild trust in building regulation and compliance and went on to say that it would eliminate the need for EWS1 forms.
It also does not class mortgage lenders, or other financial services, as polluters in its bill unlike other amendments which could seek redress from mortgage lenders.
Lord Greenhalgh, who is minister of state for building safety, leasehold, resilience and emergencies and communities, said in the House of Lords: “We are very aware of the Polluter Pays Bill and the work that is being done… This is something we are looking at very carefully to see if it would further enhance the Building Safety Bill.”
He added that it was already considering extending the legal action time limit from six years to 15 years, but the Polluter Pays Bill could provide further support to ensure that it is the polluter that pays remediation.
Industry response
The proposal has been greeted positively by the mortgage industry, but concerns have been expressed around how long this process will take to implement.
Robert Sinclair, chief executive of Association of Mortgage Intermediaries, said: “This proposal to resolve the issues on funding the remediation of buildings with unsafe cladding would be a significant step forward to resolving the problems facing residents. However, it will still take time particularly if ministers fail to grasp the opportunity and support these amendments.
He added: “Whilst these proposals are welcome it will take some time to avoid the need for EWS1 forms and too long to resolve the structure of many high-rise buildings. It is right that government should be funding all replacement and repairs and then recovering the cost from those they deem responsible – rarely those who currently occupy the properties.”
The Intermediary Mortgage Lenders Association’s chief executive Kate Davies said that these latest proposals could lead to “meaningful progress” to the cladding crisis.
She said: “By shifting the balance and making developers front building remediation costs, we can hold those who failed to properly construct these dwellings to account, remove the cost burden currently unfairly placed on individual homeowners, and speed up the process of remedying unsafe homes.
“This isn’t going to be a perfect solution and there will be instances where building developers cannot be found to front the costs, especially where they are no longer in operation, but it would be a step in the right direction. Any initiative that helps to ease the immediate dilemma for borrowers and gives mortgage providers the reassurance to lend on safe properties, should be welcomed.”
Government response
A Ministry of Housing, Communities and Local Government spokesperson said: “Our priority is making sure residents are safe and feel safe in their homes by removing dangerous cladding from the highest risk buildings as quickly as possible backed by over £5bn.
“We have been clear throughout that owners and industry should make buildings safe without passing on costs to leaseholders – and we will ensure they pay for the mistakes of the past with a new levy and tax to contribute to the costs of remediation.”
A cohort of willing brokers signed up with the FCA to help mortgage prisoners, in an initiative last summer where a letter was sent out inviting the borrowers to contact an adviser to review their options.
Ray Boulger, senior mortgage technical manager at John Charcol, said: “The question is, why didn’t more people come forward? It could be there’s not much benefit to them of doing so. Particularly for those who’ve been paying down repayment mortgages, the loans may be fairly small and so the benefit of a lower rate is smaller.”
About 80 per cent of mortgage prisoners are thought to be on rates of about four per cent.
The advisers signing up to the initiative agreed to offer fee-fee advice, and to provide data to the FCA on numbers of inbound calls received, fact finds conducted and applications submitted.
The number of borrowers contacting brokers were relatively small, while the proportion overall who have remortgaged or transferred is thought to be in the low teens.
“We need detailed research for a significant proportion of mortgage prisoners, to make it clear how many could get a useful benefit from remortgaging or, because of the size of the loan or credit situation, they would not do,” said Boulger.
He added it was surprising the situation had gone so far without the FCA having this information. “If you’re trying to help mortgage prisoners, obviously you need to understand who they are,” he said.
Long shadow
The FCA has classed about 250,000 borrowers as mortgage prisoners. The regulator will now further investigate their characteristics to understand what actions may be helpful.
Additional economic challenges arising during the pandemic are thought likely to see the number rise.
Charlotte Nixon, proposition director at Quilter, said: “It’s clear the FCA has good intentions to do the right thing by customers, but unless lenders can be more flexible, there is not much more we can do in the broker space.”
She said lending criteria had tightened during the pandemic.
“Of course lenders have their own risk appetite. But they are being picky at the moment, especially with first-time buyers and the self-employed,” Nixon said.
“We need to support customers who borrowed according to the rules before the financial crisis. During the early stages of the pandemic, we took our hats off to lenders as they made changes overnight to support borrowers. This now risks casting a long shadow over the sector,” she said.
Key Mortgage Advice, which offers options for older borrowers who may be eligible for retirement interest-only (RIO) or equity release, also welcomed the FCA’s next steps.
“The review of existing measures is important. With a significant cohort of mortgage prisoners being older borrowers, it is particularly frustrating to know that with the right specialist advice many may be able to benefit from a RIO or equity release mortgage, which might better meet their needs.
“We need to push forward and help these borrowers achieve the right outcome for their individual circumstances,” he said.
The review aims to improve the data available about mortgage prisoners and to assess the effectiveness of two interventions that were supposed to have helped the trapped borrowers.
On data, the FCA and Treasury will collaborate to produce new information with more detail on the demographics and loan characteristics of mortgage prisoners. They will make use of latest product sales data and credit reference agency data.
The FCA will also review how it has produced figures saying how many mortgagees with inactive firms are unable to switch despite being up-to-date with payments. It admitted that July 2020 assumptions led to “a low estimate” and that use of latest data – including taking account of economic shifts during the pandemic – would likely result in a higher number.
As to interventions, it will review the effects of two interventions, namely modifying affordability assessments and a rule change on intra-group switching.
Gearing up
The affordability change review will look at take-up of resources and support from mortgage brokers who have agreed to provide advice to mortgage prisoners, and will consider Money and Pensions Service and FCA product sales data.
The regulator will also look at the extent of borrowers switching within lending groups.
The review is happening from July to October, with stakeholder engagement expected in July and August.
The resulting report to Treasury will be put before Parliament by the end of November.
Rachel Neale, lead campaigner at UK Mortgage Prisoners, said: “Looking into the characteristics of mortgage prisoners is a way to victimise us, saying we are people who shouldn’t have borrowed what we did or how we did it.
“These products were regulated by the FCA. And anyway, it was not the products that landed us in this mess. It was a failure by Treasury to put in place adequate protections when it sold the mortgage books.”
The group was grateful to be invited by FCA to participate in stakeholder discussions, but feared the review would be the latest in a series of moves by Treasury “to kick the can down the road,” Neale said.
“Nothing will happen until at least next year. This is winding down the clock until people lose their homes, come to end of term, or die,” she added.
The People’s Mortgage represents “the only real solution,” to mortgage prisoners’ woes, says Birkett (pictured), who’s been working to find ways to release the prisoners during the past year.
The product will be offered by JustUs, which is a trading style of Birkett’s latest venture eMoneyHub, a P2P technology platform.
The eMoneyHub platform fuels JustUs, a UK and European Union (EU) debt platform, as well as global P2P crypto platform, Moneybrain.com.
“The People’s Mortgage has been designed to accommodate mortgage prisoners and others excluded from mainstream mortgages,” Birkett says.
“We are the only real solution, and with the cladding scandal and people on furlough, the excluded mortgage market now counts two to four million people,” he says.
Product details ‘TBA’
Birkett’s latest venture is currently stepping through the process of gaining Financial Conduct Authority (FCA) regulatory approvals to offer the crowd-funded homeowner mortgages.
The JustUs crowdfunding platform already serves personal loans, bridging loans and buy-to-let mortgages.
The People’s Mortgage will be a five-year fixed rate product at 2.5 per cent. According to Birkett’s current estimate of the time needed to gain approvals, the product launch is pencilled in for Q4 2021.
“The product is designed to accommodate the millions of people excluded from the mainstream market – mortgage prisoners, and groups like the self-employed, retirees and people with historical credit problems,” Birkett said.
There will be no redemption penalties, a one-page mortgage switch process, and “commonsense underwriting,” he said. Product details, like the term of the mortgage, loan to values, maximum and minimum loan sizes, and product fees, are “to be advised.”
“We will take a commonsense approach. If the person is up-to-date and has made mortgage payments for the last twelve months – say £1,000 a month at 4.75 per cent, affording £600 at 2.5 per cent. . . We will take full advantage of the straight switch affordability rules now in place from the FCA.”
Last year, JustUs sought an exemption from full homeowner residential mortgage lender regulation for the People’s Mortgage. “They could quite easily, with the stroke of a pen, make P2P mortgages exempt. They haven’t got their head around the fact we’re not a lender — it’s a crowd-funded mortgage,” Birkett said.
But the FCA and Treasury refused.
“We’ll have to incur additional compliance and cost, which we were wanting to avoid,” Birkett added.
Rollercoaster career
Many in the industry will be familiar with Birkett’s backstory. He established Prestbury in 1993 selling mortgages and personal loans in the North West, after a motorcycle accident left him unable to continue in his job at the time.
His rollercoaster career saw him rise to chief executive of AIM-listed Prestbury Financial at the age of 31, only to lose it all five years later when the company went into liquidation in 2008.
The online broker network was the UK’s third-biggest network at the time.
About 140 Prestbury advisers were transferred to Personal Touch Financial Services (PTFS) in a sale of the business. The PLC shell company was wound up in December 2008.
Making a comeback
Now Birkett is making a comeback with a mixture of backers including the crowd, venture capital and a government grant. eMoneyHub raised £1.2m this year, with £600k from Manchester Venture Partners, with the same sum matched by the government’s Future Fund.
The deal was then offered to investors on Crowdcube, bringing the total raised to £1.3m. “We are also, within the next month or so, doing a follow on equity round,” Birkett adds.
He says crowdfunded lending has the potential to disrupt the mortgage market, including unlocking the growing numbers excluded from conventional mortgage products.
He said: “There’s a desperate need from people excluded from mortgages.
“The mortgages would not be restricted to mortgage prisoners, but the biggest demand and need today is the mortgage prisoners, because they have been paying sometimes double what they should be for the past 10 years.”
“We’re the digital equivalent of a building society, taking money in savings deposits and lending it to borrowers. We can take money at scale from the people.”
“Since Covid, mortgage prisoners are into their millions,” Birkett said.
The group had hoped for a House of Commons vote in favour of an amendment to the Financial Services Bill which would have capped the standard variable rate (SVR) on their mortgages.
The BBC reported on Monday that government was whipping Conservative MPs to vote down the amendment, which they did.
The borrowers became trapped on mortgages when government bailed out lenders following the financial crisis and then sold the loan books to venture capital funds.
Government has argued the latest proposed measure to help them would represent a destabilising intervention into the mortgage market.
The Mortgage Prisoners Action Group (MPAG) said its members have been made to “pay for the iniquity of regulated banks in 2008,” and further, had their characters attacked by politicians.
MPAG said: “We feel utterly disappointed, distressed and betrayed that the government has failed to include amendment 8 to the Financial Services Bill.”
“The measure would have provided immediate relief and significantly changed the lives of mortgage prisoners who have faced over a decade of financial and emotional misery.”
The group singled out economic secretary to the Treasury, John Glen, for the “continued and tactical demonisation of mortgage prisoners”.
The proposed amendment was voted for by the House of Lords earlier this month.
The amendment was passed in the House of Lords nearly two weeks ago and would have allowed the government to set a maximum SVR for borrowers who were tied to inactive or unregulated lenders.
The cap would have been two per cent above the Bank of England’s base rate.
However, despite various MPs saying they were in favour of the amendment in Parliament, the majority voted to disagree with the measure.
The number of Conservative MPs following the whip voting to scrap the amendment totaled 355, while 195 Labour MPs voted in favour in conjunction with 72 MPs from other parties.
‘Sticking a plaster’ on the problem
Anthony Browne, Conservative MP for South Cambridgeshire said during the debate: “We agree that we need to help these people, but the question is: how do we do that? The cap of interest rates is, as people say, a sticking plaster—even its supporters say that. I can see the appeal of it, but this sticking plaster comes at great cost: Parliament would be setting out interest rates in primary legislation.
“That could lead to huge unintended consequences in lots of ways—for example, through the impact on financial stability that we heard about earlier on some of the firms. It would also set an extraordinary precedent, with the government doing price controls in that way.”
He added: “It is also really not the solution we need. Where someone is trapped in a horrible prison with their guards abusing them and they are very uncomfortable, would they want that prison to be made more comfortable and the guards to behave themselves, as this cap in effect proposes, or would they want to get out of the prison?
“They would want to get out of the prison. We need to make sure that mortgage prisoners can move to other mortgage providers.”
