Image Source: World Financial Review
A report paid for by Martin Lewis says that the government made £2.4bn by selling mortgages from failed lenders to investment firms.
About 200,000 mortgages were sold to companies that couldn’t give out new loans. As a result, many homeowners have high rates because they need help getting loans elsewhere.
The founder of the website MoneySavingExpert wants the government to free people who are stuck on their mortgages.
The Treasury said that it would think about all ideas.
Since 2008, when the economy crashed, Samantha has been stuck with her mortgage. She told the BBC that her payments would go up from £546 a month last year to £952 a month next year.
Mr. Lewis said the report clarifies that the government sold these borrowers into poverty even though it knew it could hurt them and make billions of dollars.
The result has hurt a lot of people. People are suffering financially, physically, and mentally, and the pandemic and cost of living are worsening things.
Trapped
Samantha and her ex-husband got a mortgage on their two-bedroom terraced house in 1998, and Samantha refinanced with Northern Rock 20 years later.
When the bank went out of business, her loan was one of many that the government sold to so-called “closed book” lenders.
These are investment companies that can’t give out new mortgages. Unfortunately, this means that people with loans can’t get a lower rate through them.
Many people can only switch to a cheaper mortgage if they meet the strict lending requirements that were put in place in the period after the crisis.
Samantha works as an office manager in Swindon, and she has a £150,000 mortgage that only pays the interest.
She said that the Bank of England has been raising interest rates, but her lender has also been doing it independently. She said the rate increased from 7.69% to 8.14% this month.
She said that the rising cost of living had put her under “massive” pressure, so much so that she couldn’t go to the hairdresser or buy even small gifts.
People ask her why she doesn’t sell her house, but she says that would mean losing everything and not getting another mortgage.
She said, “It’s so hard.” “It’s the worst thing in the world. It’s making me miserable.”
“Sold by the government”
The website’s founder, Martin Lewis, asked the London School of Economics to write the report. It gives costed ideas for how to fix the problem.
It said the government could help mortgage prisoners with their money and give them loans for free. As a last resort, it could back mortgage loans from other lenders.
The report said fixing the problem would cost between £50 million and £347 million over ten years.
The Treasury said that it had already worked with the Financial Conduct Authority [FCA] to update mortgage rules, removing the barrier that kept some mortgage prisoners from being able to switch.
It also said that it is open to more practical and fairways to help mortgage prisoners and will work with the FCA and the industry to consider all proposals carefully.
The FCA said it understands how hard it is for mortgage borrowers who can’t switch but would be better off if they did.
It said that it removed regulatory barriers to switching and made it clear what firms should do to help borrowers who are having trouble paying back their loans and treat vulnerable customers fairly.
How hard is it for people to pay their mortgages?
Arrears were at their highest point during the 2008 financial crisis. They only rose a little during the pandemic because lenders gave payment breaks.
Banks and building societies can take back their homes when people have trouble making payments, but lenders try to avoid this.
In the five years after the 2008 crash, more than 200,000 homes were taken back by the bank.
Because of Covid, no repossessions existed between March 2020 and April 2021. As a result, less than 4,000 were there a year after they started up again.
When the Bank of England raised interest rates by 0.75 percentage points to 3% on November 3, it was the biggest single increase in the cost of borrowing since 1989.
After the mini-budget, the financial markets predicted that the interest rate at the Bank of England would go above 6% in 2023.
But traders now think that the peak will be less than 5%. You can use the above mortgage calculator to see how changes in interest rates affect how much you have to pay each month.
Read Also: Housing prices see most significant fall
During the real estate boom of the early 2000s, people were often offered 100% mortgages and cash back.
But after the financial crisis of 2008, the rules for getting a mortgage changed.
Loans should give borrowers more room for prices to go down before they get stuck with negative equity.
Most recent borrowers have also had their ability to pay checked against interest rates even higher than the ones we’re seeing now.
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