The chancellor had announced the £4.9bn sale of two portfolios of NRAM mortgages and unsecured loans, formerly part of Northern Rock, to Citi yesterday (April 2).
Soon after concerns were raised that the deal was bad news for clients, who would continue to be stuck with their costly mortgages.
Pressure group Mortgages Prisoners UK stated it had urged the government to sell to an active lender beforehand but this was ignored.
Jayne Emsley, a forefront member of Mortgage Prisoners UK, said: "The mortgagees have my heartfelt sympathy as they are being sold for profit to a non-lending entity.
"The government always said the loans belonged in the private sector — and once again they are selling to a private equity company and taking away any freedom of choice the consumer has."
Another Mortgage Prisoners UK member, Rachel Neale, said: "I’m disappointed at the recent sale and the entrapping of thousands into high interest mortgages after all involved admitted it shouldn’t happen again."
But the Treasury stated UKAR, the manager of the loan books on behalf of the taxpayer, had invited the top 25 active lenders to participate in the sale but did not receive a bid from any of them that covered the full portfolio of assets.
The Treasury also stressed selling to an active lender would not guarantee customers would be able to access new products, and confirmed all bidders were required to agree to its customer protections before their bids were assessed.
Ally to the cause, Nicole Renehan, said the fact the Treasury had gone ahead with the sale of 66,000 mortgages while the Financial Conduct Authority was mid-consultation showed it had not ‘listened to stakeholders’ at all.
Last week (March 26) the FCA launched a consultation on proposed changes to its responsible lending rules and guidance — the rules blocking mortgage prisoners from switching to better deals.
This came after last year MPs urged that more should be done to help consumers stuck paying high interest rates on mortgages with inactive lenders.
The FCA suggested amending its rules to give lenders the option to undertake a "modified affordability assessment" for such consumers.
Within this assessment, certain affordability rules — such as to verify the consumer’s income — would not apply, but lenders must not enter into a new mortgage contract unless it is more affordable than the consumer’s current one.
However, the regulator has previously admitted that the removal of regulatory barriers would not help all mortgage prisoners, as it was up to lenders to offer remortgage opportunities to customers.