A group of MPs are lobbying the government to help around 170,000 mortgage prisoners trapped on high interest rates.
A group of LibDem, Conservative and Labour MPs have signed a joint letter to the chancellor, calling for various actions including a cap on standard variable rate margins, and other changes to enable them to switch to a cheaper deal.
The MPs who have signed the letter so far include Patrick Grady, Mhairi Black, Kate Osbourne, Bell Ribeiro-Addy, Stuart McDonald, Andrew Selous, Andrew Gwynne, Allan Dorans and Scott Benton.
They have joined up with the UK Mortgage Prisoners group, which has been campaigning for 18 months to help mortgage borrowers penalised by circumstances since the financial crisis of 2008.
The letter outlines the financial hardship for mortgage customers, many of whom were with Northern Rock.
Just after the last financial crisis, their mortgages were held with UK Asset Resolution (UKAR), which increased the margin on their standard variable mortgages to 4.5%. At that time, due to job losses and business closures, many borrowers couldn’t switch to a better deal.
Their situation was exacerbated by the Mortgage Market Review (MMR), which left mortgage applicants having to prove their income could withstand a rate increase of two to three percent.
Since that time, many of these customer accounts have been sold to private equity firms, which are not regulated by the FCA, leaving the borrowers trapped on expensive rates and unable to switch.
In October 2019, the Financial Conduct Authority (FCA) changed the affordability rules to allow banks and building societies to help mortgage prisoners, but the UK Mortgage Prisoners Group claimed that no lenders have utilised these changes yet.
The open letter to Rishi Sunak from UK Mortgage Prisoners states: “Mortgage prisoners are being exploited, by regulated lenders and unregulated vulture funds by being held on high standard variable rates.”
Rachel Neale, lead campaigner at UK Mortgage Prisoners, said: “The Treasury has asked banks and building societies to follow the FCA’s easing of the affordability assessment, but because they’ve made it voluntary, no banks or building societies have taken up the new affordability assessment.
“In the 18 months that we’ve been campaigning, not one mortgage prisoner has been helped.”
Neale added: “There are people that are going to be made homeless in the next two years if they are not helped.”
The open letter calls for the following actions:
The FCA is also now trying to resolve the issue for mortgage prisoners through other channels. Last week, the regulator launched a call for mortgage intermediaries who will consult with mortgage prisoners to help them identify opportunities and re-mortgage where possible, or signpost them to additional support such as debt advice.
The FCA said it hopes to see as many lenders as possible provide opportunities to switch mortgages.