Credit scores ‘dominate’ mortgage prisoners experience of home ownership
Mortgage prisoners’ credit score situation “dominates” their experience of home ownership
and the associated exploitation it generates, a Cambridge University article has argued.
A Cambridge University article, published by Matthew Sparkes, conducted 28 in-depth interviews with members of the UK mortgage prisoners group between April and August 2023.
Sparkes argued that credit score classifications do not just reflect existing inequalities but can also generate new inequalities.
“Although a credit score might appear a neutral, objective representation of someone’s financial circumstances, they reflect and reinforce long-standing inequalities that originate elsewhere in the social system,” he explained.
Sparkes warned existing inequalities can become exacerbated when payment difficulties arise and borrowers’ default, as downward reclassification of credit scores will lead to penalty charges and higher interest rates.
The article looked at how mortgage prisoners credit scores can affect their situation and their lives in general.
The obligation remains on the UK government to correct a problem of its own makingThe article found credit scores dominate the situations of mortgage prisoners with many having a hyperawareness of their credit score and some defeated by the fact it cannot be changed easily.
All participants who took out interest-only mortgages did not anticipate remaining on them and certainly not for 16 or more years.
One interviewee called Diane said: “You make a decision… and you think that’s the best one and when you’re younger you don’t always think about what’s going to happen when you’re in your 60s.
“Really the main screw-up on my finances has always been this mortgage.”
Sparkes argued: “These ‘mistakes’ are not participants’ own, but outcomes born from regulatory changes unforeseeable at time of origination.”
Hyperawareness
Another of the report’s findings surrounded hyperawareness of indicuduals’ own credit scores.
It said the predicament of mortgage prisoners has “invariably loomed large” over much of the working lives of those affected.
This was demonstrated through the statements of one mortgage prisoner, identified as Lisa, who said her mortgage prisoner status has controlled large portions of her life, preventing her from being able to move house.
“The controlling impact of her credit score extended beyond her incapacity to move homes to an inability to maintain her current home to even a basic level of subsistence,” the report added.
It also said that her credit score is felt deeply as a “soul-destroying” experience because the barriers it places upon her daily life.
The definition of mortgage prisoners matters as it influences whether blame is directed towards those in arrears or the consequences of regulatory measuresThe article also examined the sense of resignation and defeat mortgage prisoners feel towards their credit score situations.
Most participants were “all too aware” that a missed mortgage payment will trigger a downward reclassification of their credit score.
One participant described it as “an axe hanging over you” and, after default occurred, another participant said: “I felt exasperated, I felt trapped, I felt claustrophobic, I felt smothered, I felt foolish”.
Until recently, many participants believed they were entirely alone in their experiences.
However, their accounts illustrate an increasing recognition of a shared “situation”, enhanced by the UK mortgage prisoners Facebook group and growing attention from government, regulators, and the media.
Conclusion
Sparkes said the definition of mortgage prisoners matters as it influences whether blame is directed towards those in arrears or the consequences of regulatory measures.
He argued the FCA’s definition might explain why there is little sign the regulator, or the UK government, are taking the necessary steps to address the issue.
The FCA defines mortgage prisoners as borrowers who are up to date with their payments, but cannot switch to a different lender or product.
“The consequences of this policy stasis are exacerbated by the year; more of those on closed book loans are falling into arrears due to immediate exposure to interest rate hikes,” Sparkes added.
Sparkes concluded by saying the findings reiterate that the obligation remains on the UK government to correct a problem of its own making.
In response, a 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.”
tom.dunstan@ft.com
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