11 Million Borrowers Could Become ‘Mortgage Prisoners’

by Mark Johnston

Recently several reports highlighting the plight of first time buyers have raised concerns both within the financial services industry and at government level in terms of the social and economic impact a struggling property market can have on society.

Recent reports have highlighted how unsustainably low interest rates may be giving home owners a false sense of security. Experts warned that households are relying on cheap repayments and would struggle if the Bank of England base rate rises.

A top UK economist, Danny Gabay has suggested that the UK cannot recover until both the government and financial services industry deal with borrowers who have taken out loans well beyond their means.

Further research is claiming that almost half of all home owners with mortgages could be affected by changes to the mortgage industry that the Financial Services Authority (FSA) are looking to introduce.

The report suggests that up to 5.5 million borrowers will struggle to secure future lending if the changes are allowed to come into effect. The report claims that home owners will become ‘mortgage prisoners’ as the stricter new rules will mean that they will not be able to remortgage their current loan or secure a new loan in the future.

The report, which was published by the Council of Mortgage Lenders (CML) highlighted the plight of up to 50% of UK home owners who have a mortgage which is almost 11.5 million people. It pointed out that 2.2 million, (around 20% of the current market) will be not be able to secure future lending or remortgaging as the new rules will not qualify them to do so. The remaining 30% which is around 3.4 million would only be able to borrow a lower amount than they currently have on their mortgage which means that when their current mortgage ends they would not be able to secure a remortgage anywhere else. This would mean that they would be stuck on lenders standard variable rates which can be a lot more costly. Those wanting to move house would not be able to agree further lending and would have no choice but to stay put or downsize. If this happened it may just be the final blow to the Uk property market.

Michael Coogan from the Council of Mortgage Lenders called the plans “an over reaction to past problems”. He went on to say: “As a consequence, (lenders) will not lend to as broad a range of potential customers.”

AdvId: 2782016 AdId: 231027239 CrId: 38302319 On a more positive note, the mortgage advisors mortgage index reported a large monthly rise between September and October and signified a even split between new hosue purchased and those looking to remortgage.

Drew Wotherspoon, director of marketing at John Charcol said: “This tells us that people are finally considering their options and are no longer content to simply sit on their lender’s standard variable rate (SVR). It is certainly encouraging that consumers are keeping on top of their options. With some excellent mortgages now available, it could well be precisely the right time for many to move their mortgage.”

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