Image Source: World Financial Review
Martin Lewis paid for a report that says the government made £2.4 billion from investment companies by selling mortgages from failed lenders.
About 200,000 mortgages were bought by companies that couldn’t give out new loans. So, many homeowners have high rates because they can’t get loans without help from other places.
The person who made the website MoneySavingExpert wants the government to let people out of their mortgages.
The Treasury said that it would think about all ideas.
Since the economy crashed in 2008, Samantha has been stuck with her mortgage. She told the BBC that her payments would go from £546 per month last year to £952 per month next year.
Mr. Lewis said that the report makes it clear that the government sold these borrowers into poverty even though it knew it could hurt them and make billions of dollars.
Many people have been hurt by what happened. People are suffering financially, physically, and mentally, and the pandemic and cost of living are worsening things.
Trapped
In 1998, Samantha and her ex-husband took out a mortgage on their two-bedroom terraced house. Twenty years later, Samantha refinanced with Northern Rock.
When the bank went bankrupt, the government sold many loans to so-called “closed book” lenders, including hers.
These are companies that invest money but can’t give out new mortgages. So people with loans can’t get a lower rate through them, which is a shame.
Many people can only switch to a cheaper mortgage if they meet the strict lending requirements that were enacted after the crisis.
Samantha works as an office manager in Swindon, and she has a £150,000 mortgage on which she 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 went up this month from 7.69% to 8.14%.
She said that the rising cost of living had put her under “massive” pressure to the point where she couldn’t even buy small gifts or go to the hairdresser.
People ask her why she doesn’t sell her house, but she says that would mean losing everything and not being able to get another mortgage.
“It’s so hard,” she said. “It’s the worst thing that could ever happen. It’s making me miserable.”
“The government sold it”
The London School of Economics asked Martin Lewis, who started the website, to write the report. It shows how to fix the problem and how much it would cost.
It said the government could help prisoners pay off their mortgages with their own money and give them free loans. In addition, it could back mortgage loans from other lenders as a last resort.
The report said it would cost between £50 million and £347 million over ten years to fix the problem.
The Treasury said that it had already worked with the Financial Conduct Authority [FCA] to update mortgage rules, removing the barrier that kept some people 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 knows how hard it is for people who can’t switch mortgages but would be better off if they did.
It said it took away regulatory barriers to switching and clarified what firms should do to help borrowers who are having trouble paying back their loans and treat vulnerable customers fairly.
How hard is it to pay people’s mortgages?
During the 2008 financial crisis, there were more debts than ever. However, during the pandemic, they only increased slightly 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.
Five years after the 2008 crash, banks took back more than 200,000 homes.
No cars were taken back between March 2020 and April 2021 because of Covid. So, a year after they started up again, less than 4,000 people were there.
When the Bank of England raised interest rates by 0.75 percentage points to 3% on November 3, it was the biggest single rise in the cost of borrowing since 1989.
After the mini-budget, the financial markets said that the Bank of England’s interest rate would be higher than 6% in 2023.
Read Also: House prices fall by the highest in years
However, traders think the peak will be less than 5%. You can use the above mortgage calculator to see how changing interest rates affect how much you have to pay each month.
During the early 2000s real estate boom, people were often given 100% mortgages and cash back.
But after the 2008 financial crisis, the rules changed about how to get a mortgage.
Lenders should give borrowers more time for prices to go down before they have to pay back more than they are worth.
Most recent borrowers have also had their ability to pay checked against interest rates that were even higher than what we’re seeing now.
