How Can Mortgage Prisoners Escape Inactive Lenders?
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How Can Mortgage Prisoners Escape Inactive Lenders?

Mortgage prisoners are homeowners who are trapped in unaffordable mortgages and unable to switch to a cheaper one. It is believed that around 250,000 people are mortgage prisoners, many stuck with inactive lenders. These people are struggling to escape paying high interest rates on their mortgage. However, there are currently some campaigns and legislation changes designed to help mortgage prisoners. Whilst every situation will be different, our guide can help you to identify if you’re a mortgage prisoner trapped with an inactive lender and what you can do about it.

What is a mortgage prisoner?

People started falling into the category of mortgage prisoner following the 2008 financial crash. Prior to the crash, banks were able to offer much bigger mortgages. Lending regulations were much more lenient, with self-employed people being able to self-certify their income and 100% mortgages were common. People borrowed heavily, with banks sometimes loaning eight times someone’s annual salary.

After the crash, mortgage lending rules were severely tightened. Many people who were granted a mortgage under the previous regulations were now unable to meet the new requirements. This meant they were unable to switch to a cheaper deal with new lenders, as it was deemed that they “couldn’t afford it”. So, at the end of their fixed-rate period they would have to pay a high standard variable rate, which is usually quite high as it is not as competitively priced as fix-rate options.

There are many reasons why people are unable to meet the strict new affordability rules which will mean they become mortgage prisoners. A change in your financial situation, like losing your job or switching to self-employed can affect your ability to meet the new rules. Mortgage prisoners who are tied to inactive lenders often find themselves powerless to improve their situation.

What is an inactive lender?

Inactive lenders are firms that are authorised for mortgage lending but are no longer lending. They will collect mortgage debt but are unable to provide new mortgages or change the terms of existing mortgages. This arose when mortgage firms went under after the 2008 financial crash and sold their loan books on to other firms or private investors.

Some mortgage prisoners may be able to negotiate a new deal with their current lenders, undergoing a ‘product transfer’ for a like-for-like mortgage. This option is not available to those stuck with inactive lenders. These unregulated lenders don’t have other products that they can transfer borrowers to. Mortgage prisoners stuck with inactive lenders find themselves having to pay huge amounts of interest through the standard variable rate – a cost that they should not have to bear.

What can I do if I’m a mortgage prisoner with an inactive lender?

As campaigns to improve the situation for mortgage prisoners continue, there are some options that borrowers can look into now to find a better deal or recuperate their costs.

Switch to a better deal with a lender who is part of the same group

In 2020, the Financial Conduct Authority (FCA) proposed a new rule which would make it easier for borrowers to switch to a new deal with a firm that is part of the same financial groups their existing lender. This would mean they wouldn’t have to meet the usual severe financial requirements that were instated after the financial crash. They would have the same flexibility that active lenders have with new customers.

Unfortunately, the FCA is unable to enforce the rule and it is down to each lender to decide if they want to take this position. Currently, very few firms have adopted this change. There’s also no simple way of finding out if your inactive lender is part of a larger group. However, Money Helper produced a list of brokers that are willing to help mortgage prisoners and may be able to help you find out if your lender is part of a group.

Civil claims

If you are unable to switch your mortgage, there are a few compensation schemes that you can join. Thousands of people are currently part of a claim pioneered by law firm Harcus Parker to help those paying a high rate of interest with inactive lenders. The law firm are handling all the legal proceedings for these mortgage prisoners on a no-win no-fee basis but will take a third of any compensation that is successfully attained.

Harcus Parker are aiming to claim the difference between the high interest rates mortgage prisoners have had to pay and the rates that should have been charged. They are working on claims for borrowers who have held mortgages with the following lenders:

  • Northern Rock
  • Bradford and Bingley
  • UCB Home Loans
  • Engage Credit
  • Heliodor Mortgages
  • Landmark Mortgages
  • Mortgage Agency Services Number Five (MAS No. 5)
  • Mortgage Express
  • Rosolite Mortgages
  • The Mortgage Business
  • UCB Home Loans
  • Whistletree

The list has not been finalised and will depend on how many claimants for a particular lender sign up to the action. The more people who sign up who want to target a specific firm, the more likely that firm will be on the final list. 

Join the campaign

The UK Mortgage Prisoner Support Service and Money Saving Expert are driving the campaign to help mortgage prisoners and help them escape inactive lenders. They were the leading organisations that drove the FCA to amend the rules to assist mortgage prisoners in 2020. By joining the campaign, you can raise awareness and help to drive real change in legislation around mortgage prisoners.

If you’re able to escape your inactive lender and you’re ready to move house, SOLD.CO.UK can sell your house for free.

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