Who Are The Mortgage Prisoners?
A Mortgage Prisoner Is:
…anyone who finds themselves unable to remortgage/refinance their existing property, or a new property. The net result of this situation is that their existing finance deal keeps them “Prisoner” in their current home.
The reasons that a person may find themselves a mortgage prisoner are many and varied. Regardless of the path that leads to becoming a mortgage prisoner, the end result is always the same. That individual or family are tied to their home. This can have a seriously detrimental effect on a persons prospects, finances and mental well being.
How does someone end up a mortgage prisoner?
There are so many factors to consider here, that it is impossible to give one answer. Some situations are more common than others.
Common situations that create a Mortgage Prisoner
Here are some of the situations members of the UK Mortgage Prisoners group have experienced. You can click the items below to find more details.
A persons Mortgage may have been sold to a third party as part of a package deal.
What happens when a persons Mortgage is sold to a third party?
Perhaps the most well-known example of this followed the demise of the high street lender Northern Rock. Over 100,000 borrowers took out subprime or high-risk mortgages with Northern Rock.
After the collapse of the Lehman Brothers and their UK associate Northern Rock, customers were faced with an uncertain future. Following a UK government bailout, a large number of customers found themselves transferred from the main companies loan book to so-called “Vulture Funds”.
These vulture funds are private equity groups who often have no lending licence. As a result, they have no way of offering a new loan. If a person’s property is in negative equity, or if the person is in arrears with 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 has capitalized by keeping them on extortionately high-interest rates. Others have been hounded, harassed and bullied. Being unlicensed and unregulated, a vulture fund can operate at the edges of what is considered acceptable. Often their sole aim is to push for as much money as they can until something breaks. When it does, the fund will asset strip their customer.
Mortgage Prisoners have been sharing their experiences openly. You can find some of them here
With a mortgage of 100% or less, a persons circumstances may have been changed before the end of a fixed rate.
What happens if a persons circumstances change during the period of a fixed rate mortgage?
Another regular issue among the UK Mortgage Prisoners is that their personal circumstances have changed. Often these changes happen during 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. Running up to 2008, Northern Rock “Together” mortgages were based on 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. At this point, the borrower would aim to secure a different type of mortgage. For example, switching to a repayment model from an interest only one.
All of this becomes problematic if a persons credit rating, earning potential or ability to pay is affected. Many customers found themselves unable to take a new deal because of illness, redundancy, or a catastrophic financial event. Unable to switch, the customer was then expected to pay the SVR (Standard Variable Rate). This rate was often considerably higher than the market rate of the time. Post-2008, when interest rates fell dramatically, that situation was only exasperated.
Many have seen their mortgage payments shoot up as a result of this type of situation. They now find themselves locked into a loan with 15 years or more to run, paying way 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.
With A mortgage of over 100%, a borrower may have now found themselves with huge negative equity.
What happens if a person owes more than 100 percent of the value of their home?
In the UK, over a hundred thousand mortgage prisoners have been created as a result of toxic lending. With hindsight, 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 had become increasingly popular.
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 had always seemed like a fairly buoyant investment. Why wouldn’t this continue? By mitigating their risk against the future value of the property, high-risk lenders could offer a way onto the housing ladder for those unable to get more competitive products. Many lenders and brokers got onboard with this type of product and pushed them on to people who wanted a chance to own their own home.
From a borrowers perspective, these products offered an opportunity to own a home. With the property set to increase in value, it could feasibly pay back the unsecured element of borrowing. Sure, the would be 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. A house bought with a 125% mortgage would have been likely to pay back the 25% overlend, and potentially a lot more. Bricks and mortar never fail.
In 2008, the world financial collapse destroyed the hopes and dreams of millions. Those that had gambled on the housing market with toxic loans were hit hard. Many were up to date with their mortgage payments and paying significantly more than their friends and relatives. The dive in house prices and confidence left swathes of people trapped in homes that now carried negative equity.
One UK Mortgage Prisoner has provided these figures from their situation:
|Total borrowed||£159,950 on a Northern Rock “together” mortgage.|
|Secured loan||£129,950 (@ 4.5% for 5 years)|
|Unsecured Attached loan||£ 30,000 (@ 6.00 % for the duration of secured loan, rising to 12% if the loans are decoupled. The loan would be considered decoupled if the house was remortgaged with a different lender for example, or if the secured amount was paid off early.|
With a together mortgage or a product like it, the borrower relied on the house price growing by more than the amount of the shortfall. This had to happen within the term of the mortgage, and preferably before the end of the fixed rate. This is especially the case with an interest-only mortgage. Paying interest for 22 years or more, and then finding that your home is not worth enough to clear the capital does not work.
Of course, landing a windfall or having a significant change of personal circumstances could facilitate a lump sum reduction on the outstanding debt. In these circumstances, a new lender would be able to entertain a fresh mortgage deal. This is hardly the ideal financial model though! One Mortgage Prisoner who struggled for 12 years to keep up payments is quoted as saying; “I don’t believe in miracles, I rely on them”! Such is the life of any family who finds themselves having to magic up enough to get through, month after month.
If a borrower has a linked loan like the “Together” product, then the unsecured element is the fly in the ointment. Should a customer decouple the loans, the unsecured part of the package can become incredibly expensive to maintain. Many have been unable to reduce the unsecured loan. Struggling to meet the secured part of the mortgage often uses up all of the funds. It is vital to prioritise the secured element, in order 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 either their lender or the third party they have been sold too.
Where does this leave someone that is now trapped in their mortgage?
If you need immediate help due to bailiffs, threats from your lender or are worried about your mental health, or that of a person close to you, then please use our contact page here:
The first step for anyone who finds themselves in this unfortunate position is to understand that they are not alone. Many have found that they have gained a more healthy perspective of their own predicament by hearing other victims stories. By understanding the circumstances that led to the world financial collapse in 2008, some have also begun to let go of the shame, and tendency to blame themselves.
Of course, research will not solve your immediate issues, but It is one of the first steps that you can take to start improving your situation.
This is never an easy time for anyone. The pressures of day to day living, running a family, holding down a job and getting food on the table can seem insurmountable at times. When dealing with a mortgage prisoner situation, we may often feel that we need to bottle up our feelings, thoughts and fears. Remember, friends and family, are supportive and vitally important in this situation.
Three steps to initiate change for Mortgage Prisoners
Educate and inform yourself
Secure a support network
Get a fix on your real position
Where do I find more information on the history and those mortgage prisoners affected?
There are some very useful resources for mortgage prisoners and those wishing to understand the predicament:
TV and Film:
BBC Panorama Documentary: Trapped By My Mortgage
This programme was instrumental in bringing together many of the UK Mortgage Prisoners. For many, the previous 10 years had been spent isolated, and unaware of the sheer scale of the problem. Cat McShane and her crew sought out those affected, and blew the lid off of the sorry tale. What they discovered was a body of people who were suffering, very often alone or isolated, with no idea as to how they could move forward. Watch now
Full length Feature: The Big Short
(Review By Sean Holland)
This film, by director Adam McKay, portrays a dramatised version of the actual events which surrounded the most devastating financial disaster of the century.
I found it was instrumental in releasing myself of the debilitating shame, guilt and anxiety surrounding my house purchase, and the subsequent woes that followed. Understanding just what was behind both the collapse and the financial community that drove products such as the Northern Rock Together Mortgage to the market in the first place, helped me get a perspective on what had happened to me.
I consider myself to be an intelligent person. My self-confidence and belief in my ability to make decisions took a serious blow during the ten years I was trapped in my mortgage, anxiety, stress and feelings of hopelessness threatened to consume me. On my worst days, they still do.
If you are a mortgage prisoner, this film will provide some clarity as to how you were manipulated by a greedy and powerful money machine. One that was intent on feeding itself at whatever cost.
The Big Short is beautifully written and the cast is world class. It is funny in places, incredibly informative and Steve Carrell’s portrayal of the character Mark Baum is genuinely heartbreaking.
There is no better way to get up to speed with the why’s and wherefores of 2008’s miserable legacy.
***** Must see!
For a more detailed consideration of how Mortgage Prisoners individual circumstances may have arisen, you can find mortgage prisoners personal stories here