Many homeowners in the UK are stuck in their current mortgages and are unable to move to a better deal. These people are known as mortgage prisoners. Mortgage prisoners are unable to remortgage because they do not meet the strict lending requirements of the banks. This means that they are paying more than they need to for their mortgages, which can put a significant strain on their finances.
The situation is particularly dire for those who took out their mortgages before the financial crisis of 2008. These people are often on high-interest rates and are unable to switch to a better deal. The Financial Conduct Authority (FCA) estimates that there are around 250,000 mortgage prisoners in the UK.
The Impact of Being a Mortgage Prisoner
Being a mortgage prisoner can have a significant impact on a person’s finances. People who are stuck on high-interest rates are often paying hundreds of pounds more per month than they would be if they were on a better deal. This can mean that they are unable to save money or make ends meet.
Mortgage prisoners are also unable to take advantage of the low-interest rates that are currently available. This means that they are missing out on significant savings on their monthly mortgage payments.
Why Are People Mortgage Prisoners?
There are several reasons why people become mortgage prisoners. One of the main reasons is that they do not meet the strict lending requirements of the banks. This can be due to a variety of factors, including a change in their financial circumstances or a decline in the value of their property.
Another reason why people become mortgage prisoners is that they are on an interest-only mortgage. Interest-only mortgages were popular before the financial crisis of 2008, but they are now much harder to obtain. This means that people who are on an interest-only mortgage are often unable to remortgage.
What Can Lenders Do?
Lenders need to do more to help mortgage prisoners. The FCA has introduced new rules that are designed to help mortgage prisoners, but these rules do not go far enough. Lenders need to be more flexible in their lending criteria and should be willing to offer better deals to mortgage prisoners.
Lenders should also be more proactive in contacting their customers who are mortgage prisoners. Many mortgage prisoners are unaware that they are stuck in their current mortgages and do not realise that they could be paying less. Lenders should be more transparent about their lending criteria and should make it easier for people to switch to a better deal.
The Benefits of Helping Mortgage Prisoners
Helping mortgage prisoners would have several benefits. Firstly, it would help to reduce the financial strain that these people are under. This would mean that they would have more money to spend on other important things, such as their families or their homes.
Secondly, helping mortgage prisoners would help to stimulate the housing market. If more people were able to remortgage to a better deal, this would free up more money to spend on other things, such as home improvements or moving house.
Conclusion
Mortgage prisoners are a significant problem in the UK housing market. Lenders need to do more to help these people by offering more flexible lending criteria and better deals. Helping mortgage prisoners would have several benefits for both the individuals concerned and the wider economy.