With six weeks to go until the 2024 spring budget, the Money Saving Expert founder has written to the head of the Treasury with a long list of economic woes and potential solutions.
The problems range from above inflation broadband and phone bill hikes, real-terms cuts to student living loans and what he describes as "mortgage prisoners". By this, Lewis means homeowners who took out mortgages many years ago, when terms were more favourable, who are now facing significantly higher rates.
This problem applies especially to people who bought their homes before the financial crash of 2008, after which rules were tightened up. Many of them found that when they tried to switch to cheaper deals, they didn't pass the new affordability checks, leaving them stuck trapped on their higher rates.
The MoneySavingExpert site says some are paying rates as high as 9%, which will come as a big kick in the teeth at a time when some big lenders are offering deals of less than 4%, with rates falling to their lowest level in six months.
Nationwide slashes its mortgage rates by up to 0.81% (Evening Standard)
Jeremy Hunt handed £20bn of headroom for tax cuts this March (The Independent)
In his letter to Hunt, Lewis said he was "looking forward to hearing what solutions the Treasury will come up with soon", referring to proposals put forward by the London School of Economics (LSE) in 2023. The university's report said: "Prisoners have suffered financially, mentally and physically for more than a decade.
"The horror of being unable to escape unaffordable mortgages has had a devastating impact on many. In the past year, near-monthly rate rises have seen some prisoners' rates leap from 4.5% to as much as 8.29%."
LSE suggested that the government's handling of the 2008 crisis made the problem worse for some people, adding: "Many have loans that were sold by the state to ‘closed book’ inactive lenders – largely investment companies that are not regulated to lend new mortgages – making it difficult for them to move to cheaper rates."
It added: "The government has made £2.4bn from the sale of these loans. Not only has it made back the cost of managing the sales, the LSE London report finds evidence that it has generated a £2.4bn surplus. In 2009, the government acknowledged that selling these mortgages to inactive lenders had the potential to severely harm consumers, but didn't take action to prevent this."
The budget is just 6 weeks away. Today I sent the Chancellor, @Jeremy_Hunt a letter, on his request, to ask that he fixes:
- Unfair Child Benefit rules penalising single income families
- The Lifetime ISA penalty hitting young 1st time buyers
- Above inflation mid-contract… pic.twitter.com/ZVIt00Cq1p
— Martin Lewis (@MartinSLewis) January 22, 2024
A list of proposals put forward by LSE includes "free comprehensive financial advice for all prisoners", interest-free equity loans to clear the unsecured element of Northern Rock's "Together" loans, and government equity loans following the model of the Help to Buy scheme, with no interest for the first five years.
It suggests a fallback option of a government guarantee for active lenders to ensure prisoners are offered new mortgages. The report, published in February last 2023, estimated that the cost of these fixes would cost between £50m and £348m over 10 years.
It says the total amount spent would be £370m to £2.7bn, reduced to £50m to £347m net as the government would hold some equity loans itself.
'The government has a responsibility to fix this'
LSE's report was funded by Lewis, who said its findings show that "the state sold these borrowers into poverty, knowing it could cause them harm, and made billions doing it".
He adds: "The result has destroyed lives. People have been left in financial, physical and mental misery, exacerbated by the pandemic and cost of living crisis ripping through their already dire situations. The government has a moral and financial responsibility to mitigate some of the damage done.
"Mortgage prisoners are the forgotten victims of the financial crash. The banks were bailed out at the expense of these borrowers.
Rachel Neale, from the UK Mortgage Prisoners campaign group, said the report showed that people in her situation "continue to be profiteered from", and that the government "opted not to act to protect borrowers" when selling off mortgages.
"The proposed solutions need to be considered in detail, and urgent action is required now before more homes and lives are lost," she added.
Campaigners call for 'urgent and sweeping' reforms
On Monday, UK Mortgage Prisoners put forward a new list of demands of the chancellor. The campaign group is due to meet with the Treasury's economic secretary, Bim Afolami, next week to discuss possible solutions.
The group's demands include measures to prevent borrowers from being trapped on reversionary standard variable rates. It suggests that at the end of a fixed rate term, lenders should be obliged to offer the option of switching to a new fixed rate, rather than reverting to an inevitably more expensive variable rate.
It also calls for no more residential mortgages sold to non-lenders, arguing selling them to acquisition companies who have no ability to offer fresh, more favourable loans, allows them to "exploit their position" at the expense of homeowners.
The group calls for a "grandfather policy", which would mean modified affordability criteria for pre-2008 homebuyers who have evidence of paying their mortgages over a number of years on higher rates than today. Finally, its proposed list of reforms includes a mortgage prisoner compensation scheme, followed by the government, the Financial Conduct Authority and the banking industry.
"Enormous profits have been generated on the back of trapping customers on high SVRs at the expense of massive detriment to those borrowers. Government was aware of potential detriment and yet proceeded with sales," it concludes.
An HM Treasury spokesperson said: “The government understands the difficulties faced by borrowers who were not able to switch to a new mortgage deal."
“We have updated mortgage lending rules, removing the barrier that prevented some mortgage prisoners from being able to switch, and introduced significant financial and legal protections for those most in difficulty.
“We continue to work with the Financial Conduct Authority and the sector on this issue and will carefully consider practical and proportionate solutions put forward.”