Homeownership is lauded in the UK, with scheme after scheme available to help first-time buyers on to the ladder.
We’ve got everything from Help to Buy equity loans to Lifetime Isas to Shared Ownership – and that’s just the start.
Now don’t get me wrong, given sky-high house prices and lofty deposit requirements, first-time buyers need all the help they can get.
I would have struggled to buy my first home last year if it wasn’t for the handy 25% cash bonus I received on top of my Help to Buy Isa savings.
But it seems that once you’ve got on to the ladder you’re somewhat forgotten.
The mortgage industry, like so many others, places responsibility on the consumer to search for a better deal. As such, fewer than 30% of Brits have considered remortgaging, according to research published by comparison website MoneySuperMarket in May. Meanwhile, 17% on a fixed-term mortgage don’t know what happens when their fixed term ends.
Here at Moneywise, we often reiterate the importance for mortgage borrowers to note down when their fixed deal ends, so they can diarise to switch, to negate ending up on their lender’s pricey standard variable rate (SVR). Just doing this one simple task can save a typical borrower £6,000 over a two-year fixed term, according to figures from mortgage broker London & Country.
However, what happens when you can’t switch your mortgage? Moneywise reported the plight of such mortgage prisoners back in March 2017.
According to an interim report published by the Financial Conduct Authority (FCA) in May, around 30,000 borrowers are unable to switch despite it being the best option for them.
This is because while many of these borrowers are up to date with their mortgage payments, they took out their mortgage before the 2008/09 financial crisis and don’t meet the stricter affordability criteria to remortgage that were introduced after the financial crash.
Plus, as these customers are with authorised mortgage lenders, the number of mortgage prisoners could be much higher – around 120,000 – if those stuck on a poor deal with non-regulated firms are included.
“More needs to be done for the 120,000 mortgage prisoners”
The FCA now plans to work with brokers to develop better comparison tools so that consumers can compare brokers more easily, with its final report to be published at the end of the year.
Let’s hope it takes strong action to help these borrowers. As one reader commented on Moneywise: “My son is self-employed, paying a high fixed-interest rate and ideally needs to remortgage.
But due to a change in workload/income he is unable to get approval, which would help the family. This total lack of understanding on a customer wishing to reduce his outgoings is completely beyond common sense.”
But it’s not just mortgage prisoners who continue to pay for the mistakes of the past. We’ve reported concerns at Moneywise about the ticking interest-only mortgage time bomb, which will see many borrowers left with a large debt and little chance of paying it back at the end of their mortgage term over the next few years.
Many borrowers in this situation say their lender should have done more to ensure a suitable repayment vehicle was in place when their loan expired.
And then there are the 135,000 low earners who had their mortgage benefit – Support for Mortgage Interest (SMI) – taken away in April and replaced with a chargeable loan.
This controversial decision has been met with criticism from borrowers, MPs and industry experts.
One reader commented on Moneywise: “There has not been enough of a fair transition period for this [the change from SMI to a loan] to happen, and to make a very important decision about getting advice and to understand a very complicated form.”
So, while it’s positive to see the financial regulator finally taking notice of mortgage prisoners – it also urged interest-only borrowers to contact their lenders in January after it found that many have not talked to their lender about their repayment options – I’d argue that a lot more still needs to be done and tangible solutions for these borrowers need to be put in place.