MPs Reject Interest Cap Leaving Mortgage Prisoners ‘Distressed and Betrayed’
MPs have voted against capping the interest that mortgage lenders can charge leaving borrowers stuck on unusually high rates “disappointed, distressed and betrayed”.
The amendment to the financial services bill to limit standard variable rates (SVRs) charged by inactive lenders was intended to help a group of 250,000 borrowers known as ‘mortgage prisoners’.
Many mortgage prisoners took out their loans with companies that had to be bailed out during the 2008 financial crisis, such as Bradford & Bingley and Northern Rock.
The mortgages have since been sold on to other providers, however the interest rate on these mortgages often remains in excess of 5% despite the Band of England base rate being 0.1% and the average two-year fixed-rate mortgage costing 2.6%.
The result has left the UK Mortgage Prisoner Action Group feeling “utterly disappointed, distressed and betrayed”.
The group said the vote was yet another example of “a continued failure of government to find immediate solutions and to put right the failure of successive governments which saw us pay for the iniquity of regulated banks in 2008, hiking our interest rates, and then selling off our homes to foreign and domestic vulture funds”.
Economic secretary to the Treasury, John Glen, told parliament that Financial Conduct Authority (FCA) research showed over half of mortgage prisoners could switch their mortgages without the government having to step in.
“Of the remaining 125,000 who cannot switch, 70,000 are in arrears and therefore could not secure a new deal even if they were in the active market. Those borrowers need to work with their lender to agree an appropriate repayment plan,” Glen said.
“The remaining 55,000 who are with inactive lenders, and are up to date with their payments but who cannot switch, are paying on average only 0.4 percentage points more than similar borrowers on reversion rates with active lenders.”
HM Treasury stated: “We know that being unable to switch your mortgage can be incredibly difficult. Many borrowers could now find it easier to switch 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 any further practical and proportionate solutions can be found for these borrowers.”