Rob Cooper is CEO of ME Group, a LegalTech business which assists legal representatives and their clients with complex legal disputes, including those relating to the mis-selling of retail mortgages.
You could be forgiven for thinking that the housing crisis is just about the struggles people are experiencing getting on the property ladder.
It is certainly true that home ownership in the UK has fallen significantly since the financial crisis, with younger people and those in London and the South East generally facing the biggest challenges.
While a significant increase in supply would help, this is held back by a sclerotic planning system, not to mention the leadership vacuum which comes from having had 19 different housing ministers since 2000.
This has consequences. Margaret Thatcher dreamt of a property-owning democracy, which would create a society with self-reliance at its core. Your own home was the key to unlocking a commodity that those whose ideas were shaped by the Cold War held dear: freedom.
Yet for many their home is now proving to be a millstone. Recent government data showed mortgage possession claims have increased year-on-year for six consecutive quarters. Meanwhile UK Finance figures show that 1,330 people had their home repossessed in the final quarter of 2019, a 17 per cent rise.
These numbers start from a low base, and are well below what they were in the teeth of the last recession. But the seeds of a potentially much greater problem are there. They were sown in the build-up to the financial crisis, the era of the 110 per cent mortgage when lenders egged on consumers to borrow big in the hope that huge yearly house-price increases would continue forever.
It went further than this. Many people had a raft of other debts beyond those tied to their home. Car repayments, credit cards and personal loans added up to unsustainable monthly outgoings. This is where some brokers stepped in with a solution, which was to consolidate all those debts into one by switching from a repayment mortgage to an interest-only mortgage.
Many who went along with this found themselves seemingly better off – and still in their home. In many cases they threw further caution to the wind and took on more debt to pay for holidays or home improvements.
Caveat emptor, you might think. These people knew what they were doing and should have been more prudent. But most of us aren’t avid readers of the money pages. We don’t know our APR from the RPI. This is why we take professional advice to help us navigate what can seem pretty choppy waters.
Many of those who were advised to switch to interest-only products are now approaching the end of their mortgage term. In its 2013 market review, the Financial Conduct Authority estimated there are 2.6 million such residential mortgages, which will mature and therefore need to be paid off between now and 2041. Many who took these loans on were not even sold the best interest-only products in the first place, with brokers chasing high commissions rather than getting their clients the best deals.
Thanks to the work of the All-Party Parliamentary Group on Mortgage Prisoners, MPs are increasingly aware of the parallel issue of borrowers being trapped with their lender and forced to pay high interest rates.
Meanwhile tens of thousands of interest-only borrowers are facing repossession every year. Even if they don’t lose their home, they could be forced into life-time, interest-only mortgages, which means the lenders takes possession of the property after the homeowner has died. Students of the so-called ‘Dementia Tax’ proposals in the 2017 general election will know how well ideas like that go down with hard-working voters.
Of those 2.4m with interest-only mortgages, the FCA estimates 48 per cent will have a shortfall, with an average gap of around £71,000. While most have some sort of repayment strategy, 21 per cent say they will simply sell their home. This means entering or re-entering a rental market characterised by high costs and growing supply issues of its own.
For those who were mis-sold their mortgage products, it generally falls to the Financial Services Compensation Service to sort out the ensuing mess. Regrettably, it is dragging its feet on settling cases. While this continues, people lose their homes.
Given when these mortgages were taken out, MPs will see an increasing number of constituents coming to them with problems over this parliament and the next. Lenders are trying to downplay the extent of the mis-selling, but it is pretty clear that this is a multi-billion-pound scandal to rank alongside PPI, which has cost the banks upwards of £40bn.
We need to see our politicians pushing policymakers and regulators to face up to these issues, help affected consumers gain appropriate redress, and ensure we are all better protected in the future. While there is a debate to be had about how to stimulate an increase in home ownership, deciding how to support those who were mis-sold mortgages seems a more straightforward discussion. It is one more of our MPs should be having.