Mortgage drought and pride are trapping homeowners

14 August 2009 / by Rachael Stiles

Homeowners are finding themselves trapped in their homes by the lack of mortgage availability, while others refuse to downsize because they want to keep up with the neighbours.

Market analysis by mortgage broker John Charcol has revealed that about a third of all residential mortgage customers in the UK, 3.5million households, are unable to move because they have insufficient equity in their property and cannot secure mortgage finance.

Few mortgage deals are available to homeowners with less than 15 per cent equity in their homes, or those without a good credit history, John Charcol says, but around two million homeowners are either in negative equity or own less than 10 per cent of their home, 500,000 hold between 10-15 per cent equity, and one million hold either self-certified or bad credit mortgages.

Ray Boulger, spokesperson for John Charcol, explains: "When most people move they rely on the equity in their property to provide the bulk of the deposit required for their new property."

Mr Boulger is critical of recent efforts from the Government to improve the flow of mortgage lending, citing the Treasury Select Committee's report Mortgage Arrears and Access to Mortgage Finance, published last week, as demonstrative of a "complete failure to understand the current state of the market" in its author, Financial Services Secretary Lord Myners.

"It's extremely worrying that someone who is helping to shape Government policy has such a dangerously naïve understanding of current conditions," Mr Boulger lamented.

Meanwhile, research from has found that some struggling homeowners are refusing to downsize, because they feel the need to 'keep up with the Jonses'.

Commenting,'s Richard Mason said: "It's absurd that struggling homeowners aren't prepared to downsize simply to save face - these people need a wake up call! While downsizing might be considered taboo, the reality is that taking a step back can actually save up to £550 per month in mortgage payments."

Mr Mason urges Brits who have the option of downsizing, who aren't trapped in their homes by negative equity or a lack of finance, to move while they can, before it becomes too late.

"The British ‘stiff upper lip' is costing thousands of people their homes and I urge those facing debt arrears to downsize while they can. Surely it's better to downsize on your own terms than face repossession and risk losing everything," he warned.

© Fair Investment Company Ltd