After many years of excessively large monthly payments, thousands of ‘mortgage prisoners’ may finally be released from their restrictive and overpriced deals.
In the wake of the financial crisis of 2008, up to 250,000 borrowers found themselves trapped in high-interest loans with no allowance for transferring to a more competitive deal elsewhere. Many of them were stuck paying more than double the average APR of a competitive mortgage calculator in the UK, resulting in hundreds of pounds of additional outgoings each month.
The eventual intervention of the Financial Conduct Authority last year forced several banks and building societies to revisit and relax their policies for those affected.
To date, four lenders have confirmed policy changes to reflect the guidelines of the FCA: Halifax, NatWest, Santander, and West Brom Building Society will all make allowances for mortgage prisoners who are up to date on their repayments and are not seeking to borrow more.
It is estimated that this initial policy adjustment could result in 14,000 mortgage payers making significant savings on their monthly outgoings while reducing their overall mortgage debt. The overwhelming majority of those who remain locked into high-interest deals, however, may be forced to wait longer to be offered the same flexible facilities.
Imprisoned in high-interest loans
Speaking on behalf of MoneySavingExpert, Martin Lewis once again reaffirmed the responsibility of the government to take action against unscrupulous lenders profiteering at the expense of struggling borrowers.
“Mortgage prisoners are the forgotten victims of the 2008 financial crash,” he said.
“The government at the time chose to bail out the banks, but unfairly and immorally, hundreds of thousands of their victims were left without adequate help, trapped in their mortgages and the financial misery caused by it. And they have been forgotten ever since.”
“There is a moral responsibility to release money to free mortgage prisoners from their penury.”
“Intervention can and will save lives.”
Meanwhile, a statement released by the Treasury indicated that while the government is aware of the issue, no formal measures or even timelines to rectify it have been outlined to date.
“We know that being unable to switch your mortgage can be incredibly difficult,” read the statement from the Treasury.
“Thousands of borrowers will now find it easier to switch to an active lender or continue interest-only payments thanks to recent rule changes by the Financial Conduct Authority, and we have been working closely with the industry to ensure more is done to help those who are eligible to switch.”
“We remain committed to looking for practical new solutions for borrowers who are struggling.”
The importance of independent mortgage comparisons
Irrespective of market conditions or personal financial circumstances, the importance of conducting a comprehensive mortgage comparison before applying is paramount. Consult with an independent broker at the earliest possible stage for the impartial expert advice you need to make the right decision.
Likewise, if you believe you may be ‘imprisoned’ in a high-interest product and would like to discuss switching to a more competitive loan, an established broker can help you find and secure an affordable alternative.