Treasury snubbing 'mortgage prisoners', say MPs

MPs are challenging the government to live up to a promise to help homeowners trapped paying high interest rates because the Treasury sold their mortgages to unregulated firms.

Since they cannot switch to a better deal, an estimated 250,000 homeowners are forced to pay standard variable interest rates.

These are well above what a competitive mortgage would charge.

But moves to ease their plight are being blocked, MPs say.

The House of Lords has passed an amendment to the Financial Services Act to cap rates for borrowers in that position, known as "mortgage prisoners".

But government whips are instructing Conservative MPs to vote against the amendment in the House of Commons.

Chancellor Rishi Sunak has promised to look at "workable solutions" for the homeowners. But the Treasury claims the SVR cap would be "unfair" on other borrowers.

Since the financial crash, tougher affordability checks have made it hard to change lenders if your mortgage is large compared to your house price - or if you're close to retirement or have bad credit.

But most mortgage borrowers can still switch to a cheaper mortgage deal on lower interest rates with their existing lender.

However, an estimated 250,000 borrowers have seen their home loans sold by the Treasury to unregulated firms that do not offer new mortgage deals.

As a result, they are trapped by their mortgages, forced when their initial deal ends on to high standard variable interest rates - where their payments can be double or treble what they would pay in a competitive mortgage.

After the last Budget, Chancellor Rishi Sunak promised to look for "workable solutions" to help mortgage prisoners.

But in spite of the chancellor's promise, the Treasury has been lobbying MPs hard not to support the Lords amendment.

Seema Malhotra, chair of the all-party parliamentary group on mortgage prisoners, said: "We need to do something to protect these consumers, we need to do something to bring back some sort of level playing field for people who are in this situation through no fault of their own they took out their mortgages in good faith with regulated fully regulated High Street lenders.

"It's through the government selling off these mortgages without adequate protection to these mortgage loan sharks that has led to this situation. A targeted intervention for these for this specific circumstance is what's needed, and it's needed now."

In a statement to the BBC, the Treasury said: "We know that being unable to switch your mortgage can be incredibly difficult. But an interest rate cap would have serious market implications and be unfair to other borrowers.

"Many borrowers could now find it easier to switch to an active lender or continue interest-only payments, thanks to recent rule changes by the Financial Conduct Authority.

"We're committed to finding practical and proportionate options to address this issue and will set out further steps shortly."

Many of the trapped borrowers took out high loan-to-value mortgages before the 2008 financial crash - something the government is again encouraging in Budget measures introduced last week designed to support mortgages worth 95% of the value of the property they are used to purchase.

Posted on Apr 26, 2021.

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