by Justice4MortgagePrisoners | May 4, 2020
by Justice4MortgagePrisoners | Apr 18, 2020
by Justice4MortgagePrisoners | Mar 29, 2020
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Another regular issue amongst the UK Mortgage Prisoners, is that their personal circumstances have changed in the period between signing a fixed rate deal and renewing that deal. It is very easy to make a decision to sign a mortgage when things are going in the right direction. What may seem like a manageable payment, interest rate or loan term one moment, can quickly turn into a nightmare. A lot can happen in a few years, as many are finding to their cost.
With a fixed rate mortgage, a lender agrees to offer a low rate for a set term. Around 2008, A popular deal for Northern Rock together mortgages was a fixed term of 5 years. At the end of the 5 year term, the borrower would traditionally flip the mortgage to a new lender to get a better deal, or to secure a different type of mortgage. For example, the borrower may want to switch to a repayment model from an interest only.
All of this becomes problematic if a persons credit rating, earning potential or ability to pay is affected. If a person finds themselves unable to take a new deal because of illness, redundancy, a catastrophic financial event or fall in house prices, they are then expected to pay the SVR (Standard Variable Rate). Many have seen their mortgage payments shoot up as a result of this situation. They now find themselves locked into a deal of 15 years or more, paying over the odds. When applying for new loans they are told that they do not pass the affordability test.
This creates the classic Mortgage Prisoner dichotomy. The borrower may now be paying £1000 a month and be told that they cannot afford to pay a mortgage of say, £750…
This is a very common occurrence.
It may seem difficult to understand how a person could borrow over 100% of the value of their home in the first place. In fact, during the years leading up to the 2008 financial crash, this type of mortgage package became increasingly popular. In the UK, over a hundred thousand mortgage prisoners have been created as a result of this lending tactic.From the lenders perspective, this type of deal may have seemed like a viable risk in the early part of the century. House prices were on an upward trajectory. Property has always seemed like a fairly buoyant investment. Why would things not continue in that way? By mitigating their risk against the future value of the property, they could offer way onto the housing market for those unable to get more competitive products. Many lenders and brokers got onboard with this product, and pushed them on to people who wanted a chance to own their own home.From a borrowers perspective, these products offered a way to get on the housing ladder, albeit with an increased level of risk. Once in their new home, the borrower would have a fixed period to overpay, find a new way of financing, or increase their borrowing potential. Sadly the world financial collapse, arguably bought about by the aggressive lending of such loans, has rendered most of these borrowers trapped.
One UK Mortgage Prisoners has provided these figures from a real situation:
With a together mortgage, or a product like it, the borrower relied totally on the house price growing by more than the amount of the shortfall, before the end of the fixed rate. Of course, landing a windfall or having a significant change of personal circumstances that would facilitate a lump sum reduction on the outstanding debt would also help. In these circumstances a new lender would be able to entertain a fresh mortgage deal. If you have a linked loan like the “Together” loan, then the unsecured element is the biggest risk. BY decoupling the loans, this part of the package can become incredibly expensive to maintain. Many have been unable to reduce the unsecured aspect down, as they have struggled to meet the secured part of the mortgage to keep a roof over their heads.Sadly a huge number of people are now living in properties that are down 25% or more on the outstanding liability. For these there is no chance of a remortgage and they are at the mercy of their lender, or the third party they have been sold too.
Perhaps the most well know example of this followed the demise of the high street lender Northern Rock. Over 100,000 borrowers took out sub prime mortgages with Northern Rock. The broad strokes of the situation were that, following the collapse of the Lehman Brothers and their UK associate Northern Rock, customers were faced with an uncertain future. Following a UK government bail out, a large number of customers found themselves transferred from the main companies book, to so called “Vulture Funds”.
These vulture funds are are private equity groups, who have no lending licence, and therefore no way of offering a new loan. If a persons property is in negative equity, or if the person is in arrears on their mortgage, there is very little chance of being able to escape to a new lender. Many have found that their new fund management company have capitalized by keeping them on extortionately high interest rates. Still others have been hounded, harassed and bullied. These vulture funds are unlicensed and unregulated. Very often their sole aim is to push for as much money as they can until something breaks. When it does, they will then asset strip the customer of their house.