Jeremy Hunt's mortgage summit with bank leaders has been criticized for not providing adequate relief to those most affected by the rate hike. Credit: Lucy North/PA
Mortgage inmates remain 'suicidal' and at risk of impoverishment as standard variable rates approach double digits, campaigners warn.
Some 200,000 households remain trapped in mortgage deals one at a time of the highest rates, after taking out mortgages from banks like Northern Rock that collapsed during the financial crisis.
The average standard variable rate across all lenders hit 7.52% this week as surprisingly strong inflation pushed up interest rate expectations. .
But many mortgage prisoners whose loans have been sold by the government to so-called vulture funds that buy debt at a discount face even higher costs.
The firms that bought their debts are so-called dormant lenders who do not offer any other mortgage products despite having a license to do so, meaning that borrowers cannot switch to lower rates.
Rachel Neal of the UK Mortgage Prisoners campaign group said: “These people are not the 4.5% or 5% that the average person sees now.
“Their interest rate has gone from the 4.5% everyone moans about to 9%, 9.5%, 10% and up.” sold to Landmark Mortgages, their standard variable rate will rise from 4.39% to 8.64%, increasing their annual payments by £3,900. a week or two the rate could rise to a high of 9.14%.
A few mortgage prisoners who were trapped after the sharp tightening of affordability criteria in the aftermath of the financial crisis are stuck on mortgages only at the interest rates recommended to them by brokers .
Someone with a £120,000 interest-only loan The payments of the 120,000 people managed by Landmark Mortgages would have risen by £5,100 a year before the latest rate hike.
According to Ms Neal, the situation is pushing homeowners into a mental health crisis and homelessness.
She said: “We have had people openly post on the [Facebook] group that they want to commit suicide if that happens because that they have nowhere to go. This is devastating – families are in poverty, they are threatened with homelessness.
The Bank of England raised interest rates for the 13th consecutive time on Thursday by 0.5 percentage points to 5%, contrary to expectations of a smaller increase. .
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The All-Party Parliamentary Group on Mortgage Prisoners called on Chancellor Jeremy Hunt to include representatives of inactive lenders managing these loans in negotiations with bank executives. The chancellor, who met with bank leaders on Friday to discuss support for borrowers during the mortgage crisis, did not heed the calls.
Co-Chair Seema Malhotra, MP, said: “The chancellor's mortgage summit did not bring any relief. for mortgage prisoners facing skyrocketing standard variable rates after the government sold them without any protection. These customers are trapped and should be treated fairly and offered flat rates.”
Campaigners said the forbearance guidance so far has not forced these companies to offer any options to those left trapped, including people undergoing cancer treatment, who can be supported by conventional lenders in a variety of ways.
< p>Landmark Mortgages has previously said that homeowners are free to switch to other lenders “without any penalties” and that it encourages any customers in need of support to turn to him for more help.
Treasury Representative said: “We have updated the mortgage lending rules – by removing the barrier this has prevented some mortgage prisoners from crossing over and provided significant financial and legal protection for those most disadvantaged.
The spokesman added that the Treasury “ open” to practical and proportionate solutions to help mortgage prisoners.
At the same time, the Financial Conduct Authority said it recognizes the “difficult circumstances” faced by those trapped in standard variable rates, and commits to “support industry and government in their work on this issue.”
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