Pressure mounts for SVR cap to help mortgage prisoners
There are growing calls for regulators to introduce a cap on standard variable rates for mortgage prisoners.
Lord Stevenson tabled an amendment to the Financial Services Bill, which is being debated today in the House of Lords, that would cap the costs paid by borrowers with inactive lenders who are unable to rise to 2 percentage points at the above the base rate of the Bank of England. .
A separate amendment was tabled by Lord Holmes today to ban the sale of mortgage books to unauthorized entities.
It comes as MoneySavingExpert founder Martin Lewis urged the government to take immediate action to prevent borrowers from becoming “catastrophic.”
Lewis warned that there is a potential threat to well-being and even lives if help is not delivered quickly.
The UK Mortgage Prisoner Action Group today released a report which claims that trapped borrowers have paid on average 1.33 percentage points more than the average SVR over the past decade, rather than 0.4 percentage point according to FCA calculations.
The action group says its calculations are based on average SVR data from the Bank of England rather than figures provided by a comparison site on which the FCA based its estimate.
UK Mortgage Prisoners also claim that £ 165,000 additional interest amounts to between £ 25,000 and £ 45,000 in additional costs over the past 10 years over the rates available to those who have been able to switch offers.
They also say that only around 40 families have so far been helped by FCA’s modified affordability assessment.
Martin Lewis, who met with Chancellor Rishi Sunak to discuss the issue of mortgage prisoners after last week’s budget, said: “While the government chose to bail out the banks during the financial crisis, it never bailed out the customers of the banks who were victims of this collapse.
“Mortgage detainees have had to pay 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.
“In addition to 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 that I funded has a compelling argument as to why an SVR cap is not a balanced long-term solution.
“Yet instead of anything else, I think for those with closed-book mortgages, it’s a good stopgap while other detailed solutions are worked out, and I’m very happy that the all-party parliamentary group on mortgage prisoners is pushing it.
“It would provide immediate emergency aid to those most at risk of financial ruin.
“No one should underestimate the threat to well-being and even lives if this doesn’t happen, and will happen soon.”
Commenting on his amendment on mortgage book sales, Lord Holmes said: “The amendment seeks to ban the pernicious practice of selling mortgage books to, well, anyone really.
“The non-authorization, apparently, is not currently a problem from the regulator’s point of view.
“It seems like an extraordinary loophole that allows such sales to persist, leaving the people involved correctly described as mortgage prisoners.
“The amendment would effectively and efficiently prevent other people from being imprisoned in this way.”
Mortgage Strategy has contacted the FCA and the Treasury for comment.