Ťhe era of ultra-cheap mortgages is apparently nearing an end as lenders pull their lowest-cost deals in preparation for an increase in the Bank of England base rate. But for thousands of borrowers it never started. More than a decade on from the financial crisis, these homeowners remain trapped paying interest rates well above the average and unable to move to a cheaper deal.
With predictions of a rise in the base rate before the winter is out, and increases in other living costs, many of these households – known as mortgage prisoners – are becoming anxious about how they will meet their monthly bills.
“Everyone is extremely on edge about the rate rise,” says Rachel Neale of the campaign group UK Mortgage Prisoners. “These people are already struggling. Some are using food banks, some are facing repossession.”
A price war among lenders meant that until recently it was possible to lock in for five years at a rate below 1% if you had enough equity, while the average 10-year fixed-rate had fallen to only 2.36%.
In contrast, those stuck on standard variable rates (SVRs) are typically paying a rate of about 4.39%. 今年早些时候 MPs voted against a cap on SVRs that would have limited the amount lenders could charge to a rate of two percentage points above the base rate, which would have meant a current pay rate of 2.1%.
A base rate rise from 0.1% 到 0.25% either in December or January has been widely predicted, which would add about £12 a month to a £150,000 mortgage. If the base rate goes up to 1% and lenders’ SVRs follow suit, the typical monthly home loan bill for the same property would increase by £71.
关于 250,000 borrowers were thought to be mortgage prisoners but earlier this year the City regulator, 这 Financial Conduct Authority (FCA), said it believed this figure was an underestimate.
Many originally took out their home loans with lenders that had to be rescued during the financial crisis, including Northern Rock and Bradford & Bingley, and have since had their mortgages sold on to another provider.
Most of the providers are “inactive”, which means they do not offer new mortgages for people to switch to. Issues such as negative equity, having an interest-only mortgage, missed payments or changes in circumstances have prevented people from switching to a different lender despite interventions from the FCA.
As well as not offering new deals, the inactive lenders are typically charging higher SVRs than those of the mainstream lenders.
Paying a much higher rate of interest than that available on the open market is not only frustrating – it has knock-on effects on the rest of people’s finances.
“It’s not just the mortgage that is the problem: people aren’t able to put away money for pensions,” Neale says. “When they go to any other type of lender, the fact that they are with an inactive lender creates a black cloud over them – they’re with a debt collector, basically.”
Neale and some of the other members of the group have helped more than 100 people renegotiate with their lenders over the past year, including one case where a desperate borrower was moved from a rate of 4.79% 到 1.55%.
But they say more needs to be done to help the group and that the Treasury has let them down by allowing lenders to buy their mortgages without making guarantees about how much they will be charged.
Marc Jelfs and his partner are among those who have been unable to make the most of record low interest rates and are worried about what will happen to their payments when the Bank decides to act.
They took out a mortgage with Northern Rock in 2004. At the time it was possible to “self-certify” – where, instead of providing evidence of your income, you only needed to state what it was on the application form – and, as Marc was self-employed, they took that option.
In November 2007 they were lined up to move to a new deal with the bank when it was pulled – and then the credit crunch hit. “We were moved on to a rate of 6.5%-7%. My monthly payment was £1,100 interest-only,” Marc says. “That lasted for three years, and I got into debt on my Visa.”
The family’s mortgage ended up with the bailed-out bank and then got sold to a company called Cerberus, which bought up mortgages from the failed lenders. Despite guarantees that they would be able to move on to better deals after the sale, borrowers such as Marc found they were unable to move and stuck on the lender’s SVR.
“I’m paying 4.18% 现在, which includes a 0.25% discount because I’ve been a good customer,“ 他说. “It’s £682 a month interest and we have eight years left on our mortgage. After that my home will be taken from me.”
The rate is variable and subject to change at the lender’s discretion, and Marc fears for an increase in the monthly cost.
The house originally cost £110,000 and the family spent £50,000 on refurbishment. It is now worth about £220,000-£230,000, so they have plenty of equity, but their damaged credit record has so far meant that they have been told not to even bother applying for a loan.
“We will have spent £280,000 on interest by the time the mortgage ends and we will still owe £110,000,” he says. “My partner won’t even talk about it. She can’t believe that when she’s 58 she could be homeless.”
Seema Malhotra MP, a co-chair of the all party parliamentary group on mortgage prisoners, says the FCA and the government need to ensure that the borrowers can access good value fixed interest rates to give them certainty over repayments.
“On top of a rising cost of living, mortgage prisoners face increases to their already high standard variable rates,“ 她说.
Earlier this year the City regulator said it would review the effectiveness of measures it put in place to make it easier for lenders to offer loans to mortgage prisoners. These gave banks and building societies some flexibility around affordability assessments.
It is also reviewing the data it holds on the number of mortgage prisoners and how much they are paying. It is expected to report back later in November.
A Treasury spokesperson says: “We know that being unable to switch your mortgage can be incredibly difficult. Many borrowers could now find it easier to switch to an active lender thanks to recent rule changes by the FCA.
“We will work with the FCA to review the effectiveness of these changes and establish whether there are any further possible solutions that can be found for these borrowers that are practical and proportionate.”
Many borrowers have struggled to switch but one lender has been taking on mortgage prisoners and helping them move to a better rate. Jonathan Westhoff, the chief executive of the Midlands-based West Brom building society, says that when the FCA introduced new rules to enable switches, “quite simply, we knew it was the right thing to do —— it is totally aligned with our purpose”.
The society was the first to use the modified affordability tests and had to adapt its systems so that borrowers would not be automatically blocked. “Despite it being during the height of the pandemic, my colleagues solved this problem, and we then created a dedicated team that works on the mortgage prisoner cases, as each one is different and has to be reviewed individually,“ 他说. The society has had “a steady stream of applications” from those affected but Westhoff says it wants to hear from more. “Some borrowers have saved up to a £1,000 a month on their mortgage payments, which is an incredibly substantial amount, and we are certain, 所以, that there are many more that we can help,“ 他说. 最初, it thought that borrowers were going to bigger lenders but Westhoff says anecdotally that does not appear to be the case, and more needs to be done to raise awareness of the action mortgage prisoners can take.
“We are keen to stay close to the regulator’s review of mortgage affordability and continue to contribute wherever we can,“ 他说. “We have seen, understandably, the concern in respect of the threat of rising energy costs but in some cases, the impact of being a mortgage prisoner can be more financially adverse in just one month than that of a dramatic increase in energy bills; and these borrowers have to cope with both.”
从 23 November the society will offer mortgage prisoners a two-year fixed-rate deal starting at 2.19% for borrowing of up to 75% loan-to-value, rising to 2.59% 上 85% loans – both rates well below the SVR they are likely to be paying. The deals have a £499 fee but come with a free valuation and help with legal fees.
Westhoff adds: “We’re also only a mid-sized lender, and when we first launched these products we were clear that we can only do so much due to our size, and it will take a whole industry response to be able to help more borrowers. 那说, we have significantly reduced the monthly payments of many borrowers who were mortgage prisoners, and we encourage anyone in the same position to get in touch.”