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Dominik Lipnicki: What can be done to liberate mortgage prisoners?

Dominik Lipnicki MM blog

I’ll admit ‘Justice ‘for homeowners’ does not pack much of a punch as a human rights slogan but I do wish the Government would spare a thought for mortgage prisoners.

While lenders fight over clean clients with low LTVs, guaranteed-long term incomes and repayment only mortgage applications, who is looking after everyone else?

Shouldn’t there be a duty of care? And will it not do us all a favour in the long run to help these people instead of lurching from one extreme to the other?

The very same lenders were encouraged by the previous government to allow anyone over the age of 18 to borrow to the hilt during the housing bubble. No one would suggest a return to those days, of course, but can we really just abandon these borrowers altogether and expect the housing market to improve?

The Government should be very concerned indeed about the thousands upon thousands of families who are stacking up on an ever increasing SVR due to high LTV.

We all know that the record low Bank of England base rate is keeping a worryingly large number of heads just above water. Many are currently at 95 per cent LTV or on an interest only scheme without a repayment vehicle or any hope of getting one.

We must face up to the problem now before any possible rise in interest rates. The Government’s empty coffers could do with an inflow of stamp duty money too but that can only come if these people are able to make the housing market more fluid.

The truth is that we are ignoring the needs of most of the population right now as almost all high-ish LTV deals on the market are reserved for first time buyers.

We keep hearing that many current mortgage deals are as cheap as ever due to record low interest rates but that is only true if you can jump the necessary hurdles to qualify.

We have also seen gimmicky incentives which are alleged to have improved the housing market such as the new build scheme. This has simply robbed Peter to pay Paul – much welcomed by the construction industry but the scheme does nothing to shift existing housing stock.

Is it not time for the Government, together with lenders, to come up with a modern version of, the once widely used, mortgage indemnity guarantee insurance?

Of course, we cannot go back to the dark days of indiscriminate lending to inappropriate borrowers who are unlikely to pay the debt back but this insurance could help many clients to remortgage or purchase a new home responsibly.

I totally accept why self-certification mortgages have no place in this day and age. I can also understand why interest-only mortgages are suitable for very few borrowers. But we need to do something to inject a bit of life back into this flagging market.

This problem is not going to fix itself. Let’s address it before it gets worse.

Dominik Lipnicki is director of Your Mortgage Decisions

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. John Constable 1st March 2013 at 3:04 pm

    I bought two major items in 1997, a Ford Mondeo and a house.

    The Mondeo was around £18K and if I was to buy it again today, it is still around £18K for a new one, which seems like quite good value.

    The house cost £58K and today, if I was to buy the same house, it would cost £185K (and the height of the property bubble in 2008 it was £240K), which looks like terrible value.

    What I am demonstrating here is that somehow, people persuaded themselves during the Blair/Brown/Bubble years, along with the availability of ‘easy money’ to buy what were and still are, grossly over-priced asset – a property.

    Somewhat cruelly, these people are essentially (mortgage) prisioners of choice.

  2. John Constable 1st March 2013 at 3:54 pm

    PS. When we are talking about property prices in England, we should nowadays always specify whether we are talking about property within the M25 or not.

    So, with respect to post above, I mean outside in M25, which you might have guessed anyway.

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