The London School of Economics and Political Science (LSE) has put forward a structured set of solutions that could be used to free mortgage prisoners as part of a report that is being shared with the Treasury and Financial Conduct Authority (FCA).
The proposals include free comprehensive financial advice for all prisoners, 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 and a government guarantee for active lenders to offer prisoners new mortgages.
A full policy assessment, which LSE says only the Treasury has the data to do, would also have to calculate expected benefits.
The proposals are based on research, but LSE says that there are other potential policies that could cost less or more, which it suggests can and should be explored.
The report, Releasing the Mortgage Prisoners, is being funded by MoneySavingExpert (MSE) founder Martin Lewis in the form of a private donation of almost £60,000 and commissioned by MSE.
Mortgage prisoners have been trapped on high rates since the 2008 financial crisis.
Many have loans that were sold by the state to ‘closed book’ inactive lenders making it difficult for them to move to cheaper rates.
In the past year, near-monthly rate rises have seen some prisoners’ rates leap from 4.5% to as much as 8.29%.
The report states that the government has made £2.4bn from the sale of these loans but reveals it has generated a £2.4bn surplus.
In 2009, the government acknowledged that selling these mortgages to inactive lenders had the potential to severely harm consumers but didn’t take action to prevent this.
The final LSE report has included indicative costings that the government has requested.
Chief secretary to the Treasury John Glen MP has stated that he is committed to reviewing solutions put forward in the LSE report,
Glen told Martin Lewis that proposals would be given “full consideration” as long as they met his three criteria: delivering value for money; fair use of taxpayer spending; and addressing risks of moral hazard.
The LSE report estimates these solutions could cost between £50m and £347m over 10 years depending on take-up.
While the overall outlay would be £370m to £2.7bn, this is reduced to £50m to £347m net, as the government would hold some equity loans itself.
Commenting on the report, MSE founder Martin Lewis says: “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.”
“When we put solutions to the Treasury in the past, it said it wanted to look at them, but couldn’t as they weren’t costed. Now, having fought tooth and nail to get some of the data needed from official institutions, it is costed.”
“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.”
“I hope the Treasury lives up to its past promise to investigate at speed and uses this report as a springboard to find any and all solutions to free mortgage prisoners.”
UK Mortgage Prisoners group member Rachel Neale adds: “We thank Martin Lewis for the funding of this report. It reveals that Treasury made £2.4bn surplus out of the sale of our mortgages, whilst mortgage prisoners continue to be profiteered from.”
“The report also confirms what UK Mortgage Prisoners has always known, that harm and detriment to borrowers caused by the sale of these mortgages was disregarded by government as far back as 2009 when it opted not to act to protect borrowers.”
“The severe harm already endured for over a decade, compounded now by 10 consecutive rate rises, means time is not a currency mortgage prisoners have. The proposed solutions need to be considered in detail, and urgent action is required now before more homes and lives are lost.”
LSE London distinguished policy fellow and lead author of the report Kath Scanlon states: “Since our research began in late 2019, the situation facing mortgage prisoners has become dramatically more difficult.”
“Rises in interest rates and the cost-of-living pressures occasioned by the conflict in Ukraine have made it more urgent to address the issue. We hope that our report contributes to finding real solutions.”
