It’s a strange old world isn’t it? For instance, I often wonder what those individuals – who have yet to make it onto the housing ladder – make of the plight of ‘mortgage prisoners’, for example? Do they sit there and think, “I’d love the chance of being a mortgage prisoner”? Or can they look at the situation and dispassionately see that it’s unlikely to be a very good place to be in? Essentially, overpaying for your mortgage every single month because circumstances beyond your control have engineered a situation where you are not deemed credit-worthy enough to switch products?
In this market it can sometimes seem that ‘one’s man’s trash is another man’s treasure’ and, while there might be those who would wish to own their own property whatever the potential consequences, it is perhaps only right that we have much, much tighter regulations in place, particularly around criteria and affordability, that should mean borrowers are not simply setting themselves up for a fall. However, what about those who pay every month without fail, have never got into arrears, and yet still can’t benefit from a lower rate?
The pre-Credit Crunch mantra that ‘everyone should be able to get a mortgage’ regardless of their financial situation was found out, and in rather spectacular fashion, and it’s been interesting to read some of the recent analysis around the 10-year anniversary of Lehman Brothers collapsing, and what has been put in place since then to stop, for instance, the mortgage market returning to those ‘end times’.
Clearly, we’ve come a long way since then, but the fact that – according to the FCA – there are still around 30,000 ‘mortgage prisoners’ with both active and inactive lenders, tells you that the consequences of the Credit Crunch are still being played out for these individuals. 10,000 of those prisoners are deemed to be with active lenders and there has already been a voluntary commitment from tens of lenders to those borrowers who are still unable to move to a better rate, despite having kept up with their monthly repayments, to try and help them.
That said, even if you are deemed eligible for a move, if you’ve been stuck on a lender’s SVR for the best part of 10 years, and made all those monthly payments during that time, I wouldn’t be surprised if you’re wondering why you couldn’t have been helped a long time ago. In fact, it’s something of a stain on the market, that despite being able to save these borrowers considerable sums of money during that decade-long period, they are still paying over the odds on an SVR.
What may be even more galling to these borrowers is the fact that interest rates appear to be going up after 10 years at historically low levels. Might they feel that they’ve somehow missed the boat and that, even if they were able to be moved now, they would not truly feel the real benefit that this could deliver to them? No doubt if they totted up just how much money they could have saved in mortgage repayments over that period, it would probably bring tears to their eyes.
Part of me believes that such proactive action is ‘better late than never’ but then you realise that the vast majority of ‘mortgage prisoners’ who might be able to benefit – that is 20,000 with inactive lenders and 120,000 with unregulated mortgage owners – appear to be beyond the realms of help. It might be a start to help those 10,000 but then you realise 140,000 are still going to be stuck in a mortgage Twilight Zone. What happens to them? Well the answer is that they will keep on paying the same amounts until they can get into a position where they can prove they’re a sound remortgage risk for another lender. I suspect most of them simply won’t bother.
And therein lies a major problem – inertia. Perhaps we should be taking that borrower inactivity off the table and taking a leaf out of the book of those sectors that automatically move their customers to better rates or tariffs, without them having to do anything? Would lenders need their customers’ permission to do this? I’m not so sure, but if the industry was able to take this out of a borrower’s hands, perhaps with the support of advisers, saving the borrower money and putting them in a better mortgage place going forward, then I believe there would be few who would argue with it.
Pad Bamford is business development director at AmTrust Mortgage & Credit