Nearly 50,000 ‘mortgage prisoners’ stuck with easy loans they can’t afford to leave
There are tens of thousands of people who cannot give up on the home loans that many took out before the 2007/8 financial crash, and now the financial regulator has released figures on the problem easy loans
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There are nearly 50,000 “mortgage prisoners” stranded on expensive home easy loans they cannot afford to leave, the financial regulator has revealed.
“Mortgage prisoners” took out home loans in the easy credit era before the 2007 financial crash.
Subsequently, the financial regulator reinforced the financial obstacles to taking out a mortgage loan.
These backfired on many existing homeowners, who found they couldn’t comply with the new rules and remortgage when their transactions were completed.
This left them forced to pay inflated payments on their lenders’ standard variable rates – which come into effect after the end of a mortgage term.
Some fear their home will be repossessed because they are paying 6-7% rates, two to three the typical mortgage amount currently – although some are available for less than 1%.
The average mortgage prisoner pays 4.3%, according to the Financial Conduct Authority (FCA).
Today, the FCA released a report on the mortgage prisoner problem.
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The government had asked the FCA to produce this report in order to have data to help it resolve the problem.
The FCA has stated that there are 195,000 borrowers who are mortgage prisoners.
About 66,000 of them might be able to change because some lenders might accept them, and the FCA advised them to speak to a mortgage broker.
Another 30,000 can’t change, but have low mortgage rates, so they wouldn’t benefit from a change anyway.
The FCA said, âThey are up to date in their payments but cannot change due to their lending and / or borrower characteristics. are not mortgage prisoners.
But there are 47,000 mortgage prisoners who cannot change and lose their current agreement, the FCA said.
Only a “small number” of mortgage creditors managed to escape these costly agreements, the regulator noted.
He now wants lenders to relax their normal lending rules to help mortgage holders walk away if they choose.
Other mortgage holders may be able to improve their situation by approaching consumer organizations or debt counseling charities.
Many mortgage rates, including lender SVRs, could increase if the Bank of England raises key rate this year .
The base rate is factored into the cost of many mortgage transactions, but could rise this year as the bank tries to control rising inflation .
Gemma Harle, Managing Director of Quilter Financial Planning, said: âInflation has been on the rise for some time and it is being boasted that at the next Monetary Policy Committee meeting the Bank of England will announce a rate hike. of interest.
âWhile the emergence of the new Omicron variant could mean that this decision is postponed, at some point in the not-so-distant future, rates are expected to rise.
“When they do, mortgage prisoners are often the hardest hit borrowers because they have no way of switching to cheaper mortgage deals and have to stick to their inactive lender’s standard variable rate, not theirs. leaving no control over potentially spiraling mortgage repayment costs. ”
Lenders’ SVRs are always higher than their advertised rates for new mortgages.
Earlier this year, a proposal to cap SVRs was introduced into an act called the Financial Services Bill by the House of Lords.
This would have limited the amount paid by mortgage prisoners, but was rejected in the House of Commons.