Sandard variable rates cap as pressure mounts to help mortgage prisoners

There are soaring for managers to introduce a cap on standard variable rates for mortgage prisoners.

Lord Stevenson has tabled an change to the Financial Services Bill, being debated today in the House of Lords, which would cap the costs paid by borrowers with inactive lenders who are unable to switch at 2% points above the Bank of England base rate.

A separate change was tabled by Lord Holmes today to ban the sale of mortgage books to unauthorised entities.

It comes as Martin Lewis founder of MoneySavingExpert urged the government to take immediate action to stop the situation facing borrowers from becoming “catastrophic”.

There is a potential threat to wellbeing and even to lives if help is not provided quickly, warned Lewis.

The UK Mortgage Prisoner Action Group has published a report today which claims that trapped borrowers have paid an average of 1.33% points more than the average SVR over the past decade, instead of the 0.4% points under the FCA’s calculations.

The action group says its calculations are based on the Bank of England’s average SVR data rather than figures provided by a comparison site upon which the FCA based its estimate.

UK Mortgage Prisoners also claims that £165,000 the extra interest amounts to between £25,000 and £45,000 in extra costs over the last 10 years compared to the rates available to those who have been able to switch deals.

They also say that only around 40 families have so far been helped by the FCA’s modified affordability assessment.

Martin Lewis, who met with the chancellor Rishi Sunak to discuss the issue of mortgage prisoners after last week’s Budget, says: “While the government chose to bail out the banks in the financial crisis, it has never bailed out the banks’ customers who were victims of that collapse.

“Mortgage prisoners have been left paying obscene interest rates for over a decade, through no fault of their own.

“They have been completely trapped in their mortgages and unable to escape the financial misery it causes.

“Coupled with the devastating impact of the pandemic on people’s finances, urgent action is needed to prevent the situation from becoming catastrophic.

“The independent LSE report I funded has a cogent argument as to why an SVR cap isn’t a balanced long-term solution.

“Yet in lieu of anything else, I believe for those on closed-book mortgages it is a good stopgap while other detailed solutions are worked up, and I’m very happy the All-Party Parliamentary Group on mortgage prisoners is pushing it.

“This 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.”

Commenting on his amendment on mortgage book sales, Lord Holmes says: “The amendment is aimed at prohibiting the pernicious practice of selling off mortgage loan books to, well, anyone really.

“Non authorisation, seemingly, is not a problem currently from the regulator’s perspective.

“It seems an extraordinary loophole which enables such sales to persist, leaving those involved, correctly described as mortgage prisoners.

“The amendment would effectively and efficiently prevent any other people being imprisoned in this manner.”

Mortgage Strategy has contacted the FCA and the Treasury for comment.