Mortgage prisoners stuck on rates of up to 9 per cent say they are “at breaking point” amid calls for the government to cap their rates and force lenders to offer them fixed rate deals.
Non-profit organisations estimate that there are 200,000 UK-based borrowers stuck on standard variable rate mortgages - otherwise known as mortgage prisoners - who are unable to switch to a new deal due to their lender becoming inactive or closing following the 2008 financial crash.
Despite interest rates reaching historic lows last year, mortgage prisoners were unable to benefit from this, remaining on deals of 5 or 6 per cent - what many borrowers are struggling to afford today.
Non-profit body UK Mortgage Prisoners told FTAdviser its members are now facing rates of up to 8 and 9 per cent, following former chancellor Kwasi Kwarteng's 'mini' Budget which sent rates soaring.
“I knew it was coming but hoped it would not feel sick to the stomach,” one member said, who wishes to remain anonymous.
“I am at breaking point. I have worked all my life and contributed to society, and this is the way we are treated.”
Another member said the 0.75 per cent Bank of England base rate rise last week adds around another £350 a month to their mortgage. “That’s on top of the £400 it’s already gone up by these past few months,” they said.
Other members said they were facing repossession, felt suicidal, and have lost partners due to the stress of their mortgage repayments.
Dominic Lindley, the ex-leader of Which? who now helps steer the All-Party Parliamentary Group on Mortgage Prisoners, is calling on MPs to sign a letter to the economic secretary to the Treasury, Andrew Griffith.
In it, he calls on the government to do two things. One, to cap standard variable rates being paid by mortgage prisoners at 2 per cent above the Bank of England base rate. This would bring these borrowers back onto 5 per cent rates.
Lindley is also calling on the government to place an obligation on existing inactive lenders to offer fixed rates to mortgage prisoners.
Members of UK Mortgage Prisoners have also written to their MPs asking for their signatures on the letter.
Previous action against Co-operative Bank
Back in February, the APPG on Mortgage Prisoners accused Co-operative Bank of “is still relying” on “unfair rate increases” to charge some customers “a very high” standard variable rate.
The accusation related to rate rises through one of its agency subsidiaries between 2009 and 2012 which the APPG said “were not in line” with the terms and conditions of customers’ mortgages.
The APPG asked the Co-operative Bank to “immediately halt” all threats of repossession to these customers and requested the bank cut these rates by 2.76 percentage points “to reflect the impact of the unfair interest rate increases”.
A number of other cases relating to these rate rises are currently being reviewed by the Financial Ombudsman Service, according to the APPG.
Steps taken by FCA and Treasury
In 2019, the Financial Conduct Authority estimated there were 250,000 borrowers who have a mortgage held by an ‘inactive firm’ - that is, a firm which is no longer lending or regulated to lend following stricter regulations brought in after the financial crisis.
Since then, it has refined its definition of a mortgage prisoner to the 47,000 borrowers, part of the 195,000 mortgages in closed books as of 2021.
The FCA loosened its rules in 2020 to allow lenders to assess affordability based on a mortgage prisoner’s track record of making mortgage payments if they are not looking to move house or borrow more.
It also established a list of mortgage intermediaries willing to help mortgage prisoners, which was hosted on the Money and Pensions Service’s site.
However, a 140-page mortgage prisoners review from the City watchdog, published by the government a year ago found a lack of lender risk appetite and lack of engagement from borrowers meant fewer borrowers have switched mortgages than expected.
It showed the number of mortgage prisoners engaging with brokers on the regulator's dedicated list had declined steadily over the 2021, resulting in a mere 26 mortgage offers being made to borrowers over the course of 10 months.
Following the publication of this report, the Treasury promised to commit to ‘practical’ solutions for mortgage prisoners. It said it would seek “further engagement with inactive firms” as part of its post-review follow up “to help as many affected borrowers as possible switch to an active lender”.
One practical solution the Treasury cited for mortgage prisoners was taking advantage of the modified affordability assessment, which the FCA announced back in 2018.
It allows lenders to carry out partial, rather than full, affordability assessments on borrowers which fit the mortgage prisoner profile.
ruby.hinchliffe@ft.com
