Mortgage prisoners are being forced to sell homes because they face extortionate payments, Government is told

Mortgage prisoners are trapped with their current lenders, which are often inactive or not authorised to offer new products, leaving many paying higher rates than they would otherwise need to.

They are often rejected when they apply for cheaper mortgages because they do not meet toughened borrowing criteria brought in after the 2008 financial crash, even if they are keeping up with repayments. A group representing UK Mortgage Prisoners said they had hoped a summit in Downing Street about the mortgage market would have led to talks about a new policy such as capping SVR (standard variable rate) base rate margins to help its members. The group warned that some of its members are being forced to sell their homes, often with little or no equity and nowhere to go, as they cannot afford the “extortionate payments” at current rates.

The statement added: “There is nothing new in the measures discussed that was not already in the armoury of the banks and within the current regulatory framework; once again mortgage prisoners have been left out in the cold with no measures which will help with their circumstances.

"Most disappointingly however is the fact that mortgage prisoners were not even represented. Those who have been trapped on rates of 5 per cent and upwards, through no fault of their own, for over a decade and who consequently have seen consecutive base rate rises passed on leading to rates of 6.89 per cent at the lowest have had no seat at the table.

"The most vulnerable of customers paying the highest rates have seen no action from Government, who instead hide behind a repetition of what few measures were introduced in the past, which have largely failed or are no longer effective given the current market conditions.”

The group said it understood the pain of homeowners who may be facing unaffordable payment increases, but said there “has been absolutely no recognition” of the urgent need for new measures to protect mortgage prisoners who are most at risk of losing their homes.

A Government spokesperson said: “Interest rates are rising across the world in response to global shocks, including Putin’s invasion in Ukraine. The Government’s plan has restored economic stability and will help to drive down inflation next year, but we understand it remains is a difficult time for millions of mortgage holders.

“The government has already taken steps with the Financial Conduct Authority to update mortgage lending rules, removing the regulatory barrier that prevented some mortgage prisoners, who otherwise may have been able to switch, from accessing new products.

“The Chancellor also recently met with the UK’s largest lenders to do all they can to support mortgage holders in financial difficulty. And we are providing cost of living payments worth £900 to the eight million most vulnerable families, in addition to capping people’s energy bills this winter and next.”

The statement added: “The Financial Conduct Authority’s (FCA) review into mortgage prisoners, published in November 2021, makes clear that the reason mortgage prisoners are unable to switch are varied and complex. As such, there is no silver bullet to address all of the circumstances this entire population of mortgage holders face without being unfair to other borrowers.

It added: “The financial regulator’s rules require firms to treat customers facing payment difficulties fairly. This includes requiring lenders to offer tailored support, which could include a range of measures depending on individual circumstances.

“To support mortgage borrowers with rising interest rates, from spring 2023, the government will allow those on Universal Credit to apply for a loan to help with interest repayments after three months, instead of nine. We will also abolish the zero earnings rule to allow claimants to continue receiving support while in work and on Universal Credit.

“We are helping people with the cost of living by continuing to cap household energy bills through this winter and next. And just last week, the Chancellor unveiled additional support, including providing the eight million most vulnerable families with payments of £900, increasing benefits by 10.1 per cent, and announcing the largest ever cash increase to the National Living Wage, rising to £10.42 per hour from next April.

“Ultimately, the pricing and availability of mortgages is a commercial decision for lenders in which the Government does not intervene. As such, the Government cannot force lenders to lend to borrowers that sit outside of their risk appetite.

“However, the Government continues to engage with the regulator and industry, and remains open to practical and proportionate solutions to help mortgage prisoners that do not pose unacceptable financial stability risks or are unfair to other borrowers in the mortgage market.”