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1000s of 'mortgage prisoner' landlords still need help, says Martin Lewis

lse martin lewis

Mortgage prisoners - many of them landlords - should be offered free financial advice and interest-free equity loans from the government to prevent them from losing their properties, a new study suggests.

About 195,000 households are still trapped in expensive variable-rate mortgage products, mostly loans that were taken out before the financial crisis of 2007/08.

These mortgage prisoners borrowed from lenders such as Northern Rock and Bradford & Bingley who went under during the crisis, and whose closed book loans were sold to investment firms that don’t offer mortgage products.

While the borrowers can’t move to a better mortgage with their lender, many find it difficult or impossible to take out new loans with active lenders because they don’t fit the criteria of a viable borrower; they can’t, or don’t know how to, meet current affordability tests for new loans.

It’s estimated that prisoners could now be paying rates as high as 8% on their home loans.

An LSE study into mortgage prisoners, backed by Martin Lewis of MoneySavingExpert, explains that the cost in human terms is high.

“Borrowers face financial pressures that affect their health, and the current economic context means that without help, an increasing number will likely lose their homes,” it says.

“Those households who are still prisoners are the victims of circumstances that were not of their own making.”

Dramatically

The situation facing these mortgage prisoners has become dramatically more difficult, according to the report, whose authors suggest providing free comprehensive financial advice to all 195,000 closed book borrowers, and interest-free equity loans to clear the unsecured element of Northern Rock’s Together mortgage.

The government could offer an equity loan for a maximum of 40% of the value of the property in London and 20% elsewhere – similar to Help to Buy.

It adds: “These will hopefully enable a majority of prisoner households to make progress towards returning to the mainstream and active mortgage market.”

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