Urgent action is needed to free about 250,000 “mortgage prisoners”, according to consumer champion Martin Lewis.
Mortgage prisoners are trapped with their current lenders, which are often inactive or not authorised to offer new products, leaving many paying higher rates than they would otherwise need to.
They are often rejected when they apply for cheaper mortgages because they do not meet toughened borrowing criteria brought in after the 2008 financial crash, even if they are keeping up with repayments.
A new report on mortgage prisoners has been published by the London School of Economics and Political Science (LSE).
The research was commissioned by MoneySavingExpert.com, which Mr Lewis founded, and was also funded by a personal donation from him.
Mr Lewis said: “Mortgage prisoners are the forgotten victims of the 2008 financial crash.”
He continued: “There is a moral responsibility to release money to free mortgage prisoners from their penury. I was delighted when Treasury Minister John Glen agreed in advance to review any policy proposals the LSE came up with.
“The independent, practical solutions in this report leave no excuse for not tackling this, though as an urgent first step, the Government must agree to do the remedial work, using critical data it has access to, to cost the solutions up fully.”
The LSE found mortgage prisoners are up to 40% more likely than other borrowers to default due to coronavirus.
Its research also found that mortgage prisoners are more likely than the average borrower to have general debt problems.
Many mortgage prisoners have also told MoneySavingExpert of the extreme emotional and physical burdens of the situation they have been left in.
The report argues that the Government should free mortgage prisoners.
MoneySavingExpert and the LSE are calling on the Government to urgently use data on all UK borrowers to accurately calculate the costs of proposed policy measures.
Potential solutions could include offering interest-free Government equity loans to bring down some borrowers’ loan-to-value ratios so they can re-mortgage.
There could also be mortgage rescue initiatives, allowing those whose mortgages are financially unsustainable to remain in their homes as tenants, while the property is sold to housing associations with a buy-back option later.
The LSE also suggests, regardless of which solutions are used, borrowers are given better information about their loans and protections and are better signposted to debt counselling and advice.
Kath Scanlon, distinguished policy fellow at LSE London, said: “Our research aimed to understand the range of circumstances facing mortgage prisoners and identify solutions so more of them can reduce their payments and/or restructure their mortgage arrangements and keep their home, and we found a strong case for fully investigating a wider variety of solutions.
“We hope our work contributes to a long-lasting solution for these borrowers.”
Rachel Neale, from the UK Mortgage Prisoners group said: “It is now time to find a fair and ethical solution for all mortgage prisoners.”
A Treasury spokeswoman said: “We know that being unable to switch your mortgage can be incredibly difficult.
“Thousands of borrowers will now find it easier to switch to an active lender or continue interest-only payments thanks to recent rule changes by the Financial Conduct Authority – and we have been working closely with the industry to ensure more is done to help those who are eligible to switch.
“We remain committed to looking for practical new solutions for borrowers who are struggling.”