What Can You Do If You Become A Mortgage Prisoner?

Research conducted by the London School of Economics and Political Science (LSE) has stressed the need for the government to act to help people who have become mortgage prisoners.

You’re defined as a mortgage prisoner if you are stuck with a mortgage where you’re paying relatively high interest rates and are unable to remortgage.

The LSE noted that many people in this situation borrowed from lenders like Northern Rock or Bradford and Bingley, which are no longer active. However, the loans were sold to investors during the global financial crisis that saw these lenders go under.

As a result, people with loans with these lenders are stuck with above-market rate mortgages, and because the person who now holds their loan is an investor, rather than a mortgage lender, they are unable to switch to a new product with the same lender.

It’s not as simple as moving to another lender either, the LSE research revealed, with many of those who are in this situation unable to meet the tough lending criteria currently applied by other lenders in the market.

Founder of Money Saving Expert Martin Lewis funded the research. He described mortgage prisoners as “the forgotten victims of the 2008 financial crash”.

He also stressed the importance of the government acting on the recommendations made in the LSE report. “The independent, practical solutions in this report leave no excuse for not tackling this,” Mr Lewis added.


What makes the situation so challenging?

Which? explored the various solutions presented in the LSE report, with one of the recommendations for government equity loans to be offered to people in this situation.

The consumer rights organisation explained that one of the big challenges facing those who are mortgage prisoners is that the majority are on interest-only deals. This means they don’t pay off any of the capital each month and have, therefore, not made a dent in the loan associated with their property.

That means they haven’t been able to increase the loan-to-value (LTV) ratio on their property and therefore often still have a relatively high LTV, which makes it difficult to access other mortgage deals.


What could happen sooner rather than later?

There are two recommendations in the LSE report, which it believes should be implemented as soon as possible, while the other measures it suggested are investigated. These are providing better information to consumers about who owns their loans now and funding free debt advice for those who have found themselves in this scenario.


What can I do if I’m a mortgage prisoner?

We offer help for mortgage prisoners. If you are struggling in this situation then seeking remortgage advice from a professional adviser is a sensible place to begin.

While it can be incredibly challenging to escape this trap, there is some hope. As Mortgage Solutions recently noted, Santander recently announced that it will start accepting applications from mortgage prisoners.

However, the lender will only be taking applications from those who meet strict criteria, including having no arrears on their mortgage and not wanting to sell their property or borrow more money against it.

For more information about any of our services, or if you need help as a mortgage prisoner, get in touch by calling us on 0203 3939 222.

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