Up to 250,000 Mortgage Payers Held ‘Prisoner’ by Their Lenders

Over the past decade, the number of mortgage payers trapped in highly uncompetitive deals has skyrocketed. According to the latest figures published by the London School of Economics, as many as 250,000 mortgage ‘prisoners’ are paying exponentially more than the average rate of interest on their loans. Work out what  mortgage would cost by using our UK mortgage calculator.

Many of whom are being forced to pay double the interest that would be payable on a more competitive fixed rate deal.

This is proving particularly difficult during the coronavirus pandemic, as household budgets are stretched to and in some cases beyond breaking point.  New data suggests that these mortgage prisoners are as much as 40% more likely to default on their loans than other borrowers, as a result of the pandemic.

Imprisoned in high-interest loans

The term ‘mortgage prisoner’ is used in relation to those who are prevented from switching to more competitive deals by their lenders. Having started out with an affordable loan charged at a competitive introductory rate of interest, their mortgages were subsequently switched to variable rate loans by their lenders.

Over time, the interest rate on the loan gradually increases to such a point that the borrower is paying significantly more than the Bank of England base rate, or typical industry norms. Many of those affected today are paying in the region of 5% on their variable rate mortgages when introductory fixed-rate deals available elsewhere are charged from as little as 2%.

However, the terms and conditions of their loans disallow them from switching to a more competitive deal elsewhere.

Elevated risk of mental illness

The financial struggles of those affected have been directly linked with an elevated risk of mental illness. Many mortgage prisoners have suffered from chronic anxiety, stress and depression over fears of falling behind on their repayments and subsequently losing their homes.

Martin Lewis of Money Saving Expert spoke of the government’s ‘moral responsibility’ to step in and do something about the issue.

“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., 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.”

Commenting on behalf of the Treasury, a spokesperson offered non-binding reassurance that the government is aware of the issue and will continue to make efforts to support struggling mortgage payers.

“We know that being unable to switch your mortgage can be incredibly difficult,” read the response 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.”