Parliamentary group on Mortgage Prisoners launches inquiry
The new inquiry launched by the APPG on Mortgage Prisoners offers hope of a way out for homeowners trapped in high-rate deals as a result of the financial crisis, write co-chairs Seema Malhotra and Lord John Sharkey
The All-Party Parliamentary Group on Mortgage Prisoners, set up in April, is this week launching an inquiry into how we can ensure that all mortgage customers stuck paying excessive interest rates get fair treatment and a fair deal.
These borrowers, dubbed “mortgage prisoners”, are trapped with their existing lender and unable to switch to a cheaper deal. This means they can find themselves stuck on a high standard variable rate.
The largest group of mortgage prisoners are former customers of the nationalised Northern Rock, many of who had their mortgages sold on by the government to unregulated lenders and vulture funds – organisations which have refused to offer them new mortgage deals and fixed interest rates.
Many MPs have been contacted by constituents affected and, since the phrase was coined through Money Saving Expert’s research three years ago, the issue is rising in prominence.
There is also concern that active lenders such as Tesco Bank have announced they are leaving the market and are considering selling on their customers’ mortgages. The APPG has said they should not be selling to unregulated lenders and vulture funds; they should have a duty to sell to active lenders which are willing and able to give customers new deals and fixed interest rates.
Two weeks ago, following the announcement by Tesco Bank that it would be withdrawing from the mortgage market, 27 MPs and peers signed a letter to Tesco Bank seeking assurances that it will only sell its customers’ mortgages to an active lender which would offer them new deals and fixed interest rates. We cannot allow history to repeat itself.
The APPG on Mortgage Prisoners has now published a call for evidence for its new inquiry on its website appgmortgageprisoners.com. A backbench business debate on mortgage prisoners and vulture funds is being led by APPG vice-chair Charlie Elphicke on 6 June.
As part of its inquiry, the APPG is particularly interested in hearing from mortgage prisoners about their situation and what changes they would like to see introduced.
Recent evidence suggests that mortgage prisoners have paid thousands of pounds more in interest. Some face losing their homes – leading to stress, ill-health, depression, relationship breakdown and damage to their businesses and credit records. Unfair affordability rules mean that customers may be paying 5% or 6% interest, only to be told that they cannot “afford” a mortgage which would halve their interest rate and reduce their mortgage payment significantly.
The FCA has published proposals to reform the affordability test, but it is concerning that banks will not be forced to apply it for customers trying to switch. There is also the worry that, when time is of the essence, unregulated lenders like Cerberus might not have to tell their customers about this new escape route until 2021.
Over the next few weeks we will seek to review the FCA proposals and make a contribution to the consultation which ends later in June.
The APPG is interested in views on how the FCA proposals can be made as wide as possible and communicated clearly, to help as many mortgage prisoners as possible to switch.
But the FCA proposals will not help everyone and many mortgage prisoners will still remain trapped with their existing lender. So, the APPG will also examine how proper protections can be put in place for those mortgage prisoners who cannot switch, and what protections should be put in place by the FCA, lenders, the Treasury and UK Asset Resolution when selling off remaining mortgages.
Without further action, many mortgage prisoners face a worrying future. The prospect of rising interest rates highlights the urgency of achieving further improvements.
Seema Malhotra, Labour MP for Feltham and Heston, and Liberal Democrat peer Lord John Sharkey are co-chairs of the APPG on Mortgage Prisoners