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We need a cap on standard variable rates to give “neglected” mortgage prisoners the financial relief they desperately need

We need a cap on standard variable rates to give “neglected” mortgage prisoners the financial relief they desperately need
4 min read

Mortgage prisoners are trapped in costly deals with mortgage loan sharks squeezing every last penny out of them. MPs must vote to cap standard variable rates and ensure that they can access fixed-rate deals.

Today MPs will be voting on whether to finally help mortgage prisoners by capping standard variable rates and ensuring that they can access fixed-rate deals.

After the financial crisis, many people found their mortgage sold on without their consent. These borrowers, dubbed ‘mortgage prisoners’, are trapped with their existing lender and unable to switch to a cheaper deal. This can find themselves stuck on a high standard variable rate – paying hundreds or thousands of pounds extra each year. Mortgage prisoners include members of the armed forces, nurses and other key workers.

A cap on standard variable rates for mortgage prisoners is supported by Martin Lewis and would provide immediate relief to the 250,000 mortgage prisoners. It would be a targeted intervention and would not distort the market. The 250,000 mortgage prisoners took out their mortgages prior to the financial crisis with fully regulated high-street banks like Northern Rock. They were then kept trapped on high SVRs before being sold to vulture funds like Cerberus, Tulip and Heliodor.

Mortgage prisoners had been neglected for over 10 years. Families have been destroyed and homes have been lost

The amendment applies a cap on the standard variable rate for mortgage prisoners with inactive lenders and unregulated entities and ensures that they can access fixed-rate deals. It would have no impact on the market for active lenders such as the main high-street banks which compete to offer their existing customers new deals. The number of mortgage prisoners would decline over time as they repay their mortgages or reach the end of their mortgage term.

The margins on these Northern Rock mortgages increased significantly after the financial crisis – as interest rates available to people at active lenders fell, the government kept mortgage prisoners on high SVRs and then sold them off to inactive lenders and vulture funds which also kept them on high SVRs. Prior to the financial crisis the gap between the Northern Rock SVR and the base rate was 2.09%, since 2009 it has been 4.29% above base rate.

When the government sold on the loans, it gave some of the purchasers such as Tulip mortgages “complete discretion” on interest rate policy after 12 months. Protections for later packages of mortgage sold only required the SVR to be kept at the level of the third highest of a basket of 15 SVRs – which is higher than the current rate charged to mortgage prisoners. If mortgage prisoners were entitled to new deals on the same basis as other customers then the average rate they would be paying would be 1.8%, below the level of the SVR cap of 2.1%.

The latest data released by the FCA shows that there are 250,000 mortgage prisoners with mortgage loan sharks – inactive firms which are not interested in helping customers get new deals but squeezing every last penny out of them by keeping them on high standard variable rates.

They don’t have much chance to reduce the amount they owe. This means that when their mortgage finishes when they are in their 60s or 70s, these mortgage loan sharks often put pressure on them to sell and threaten to repossess their home.

The FCA and government claim to have helped mortgage prisoners by changing the rules on affordability tests. But there has been a very slow take-up of these new flexibilities. The FCA’s cost-benefit analysis published when the rules were proposed estimated that 2,000 to 14,000 mortgage prisoners would actually switch using the new rules. The APPG has received reports from campaign groups that only 40 mortgage prisoners have been able to switch so far.

Mortgage Prisoners had been neglected for over 10 years. Families have been destroyed and homes have been lost. MPs should vote to cap standard variable rates and ensure that all mortgage prisoners can access fixed-rate deals. Too many have suffered for too long.

As consumer champion, Martin Lewis has said an SVR cap on closed book mortgages “would provide immediate emergency relief to those most at risk of financial ruin. No one should underestimate the threat to wellbeing and even lives if this doesn't happen, and happen soon.”

The government has the option of coming up with an alternative proposal to provide the relief that mortgage prisoners so desperately need. So far it has failed to do so. That’s why we support this amendment to the Financial Services Bill.


Seema Malhotra is the Labour MP for Feltham and Heston and Lord Sharkey is a Liberal Democrat member of the House of Lords. They are co-chairs of the APPG on Mortgage Prisoners.

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