MARTIN Lewis is calling for compensation for 200,000 mortgage prisoners who are trapped in high-interest loans.
A report published today has revealed that the government has made a whopping £2.4billion from these loans.
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The MoneySavingExpert is now calling on the government to free these homeowners, with many paying more than 8% interest.
Thousands of people were left trapped on expensive standard variable rates (SVRs) when the firm went bust during the financial crisis.
They’re now unable to switch to a cheaper one because they don’t pass affordability tests.
Three years ago, Martin announced that he was putting his own cash into research to by the London School of Economics and Political Science (LSE) to find solutions to free these prisoners.
He has since donated £60,000 to the research, commissioned by his consumer site MoneySavingExpert (MSE).
LSE has since published three reports, with the third shared today with the Treasury and the Financial Conduct Authority (FCA) this evening.
The final report has revealed that the government has profited from the loans issued to mortgage prisoners, making £2.4billion.
After the crash, the Government owned UK Asset Resolution (UKAR) took control of the mortgages and later sold them off.
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But in doing so they had to maximise profit to the taxpayer.
In 2009, the Government acknowledged that selling these mortgages to inactive lenders could severely harm consumers, but didn’t take action to prevent this, MSE says.
These unaffordable loans are said to have had a “devastating impact” on borrowers.
In the past year, near-monthly rate rises have seen some prisoners’ rates leap from 4.5% to as much as 8.29%, according to MSE.
The LSE report titled “Releasing the mortgage prisoners” has laid out various solutions which it believes will help prisoners eventually remortgage with active lenders.
They include:
- Free comprehensive financial advice for all prisoners (required for any borrower who might go on to access other solutions).
- Interest-free equity loans to clear the unsecured element of Northern Rock’s “Together” loans.
- Government equity loans on the model of Help to Buy, interest-free for the first five years.
- Fallback option: A Government guarantee for active lenders to offer prisoners new mortgages.
It is estimated that these solutions could cost between £50 and £347million over 10 years, depending on how many people take them up.
Martin said: “This report lays out starkly that the state sold these borrowers into poverty, knowing it could cause them harm, and made billions doing it.
“The result has destroyed lives. People have been left in financial, physical and mental misery, exacerbated by the pandemic and cost of living crisis ripping through their already dire situations.”
Previously, Martin said that the Treasury had been interested in viewing the solutions but needed them to have costs associated.
This is no longer the case.
Martin continued: “The Government has a moral and financial responsibility to mitigate some of the damage done.
“Mortgage prisoners are the forgotten victims of the financial crash. The banks were bailed out at the expense of these borrowers.”
He said that he hopes the Treasury “lives up to its past promise” to investigate and uses the report as a “springboard” to find solutions for borrowers.
A HM Treasury spokesperson said: “We have already taken steps with the Financial Conduct Authority to update mortgage lending rules, removing the barrier that prevented some mortgage prisoners from being able to switch.’
“We are open to further practical and proportionate solutions to help mortgage prisoners, working with the Financial Conduct Authority and industry to carefully consider all proposals put forward.”
Compensation for homeowners
The FCA has also been contacted for comment.
In 2019, a separate legal battle was launched by law firm Harcus Parker on behalf of customers of former lender Northern Rock.
If successful, thousands of mortgage borrowers could get a share of £150million compensation.
The firm is representing 5,000 customers, but it believes there are around 200,000 potentially eligible claimants.
It came after Harcus Parker also issued proceedings against high street bank TSB.
TSB bought £3.3billion worth of mortgages from Northern Rock, which collapsed following the 2008 financial crisis.
The mortgages were administered under TSB’s “Whistletree” brand.
If you think you might be eligible for a payment under Harcus Parkers’ suit, it’s worth speaking to a free mortgage broker to see what your options might be.
Some options could include London and Country or Trussle.
Any customers who bought one of Whistletree’s loans are eligible for a claim.
And those who took out a “Together Mortgage” may be able to seek additional compensation.
To join the claim, you can go online.
What is a mortgage prisoner?
A mortgage prisoner is a borrower who is trapped on an expensive mortgage deal and unable to switch to a cheaper one because they don’t pass affordability tests.
An affordability test assesses whether a borrower can afford monthly payments on a mortgage or re-mortgage and whether they should be offered a loan.
Having a large mortgage or being on a standard variable rate (SVR) mortgage, which will change depending on your lender, can make it hard to pass an affordability test.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]
