Mortgage prisoners are facing 'eye-watering' interest rates

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.

The Mortgage Prisoners campaigning group said that “by far the most impactful” move the Treasury could make would be to impose an SVR (standard variable rate) cap pegged to the base rate.

An SVR cap would give instant relief to thousands of members, with a mortgage prisoners’ survey showing most would have their payments cut in half, the statement added.

The statement added: “Most of our members are stuck paying rates of 4.39% or above if they are in a closed book.

"However, those members that are in open books with active lenders have been able to get their interest rates reduced to as low as 1.19% during a 20-minute phone call.”

Meanwhile inactive lenders are forcing the teachers, nurses, and doctors on their books, with nowhere else to go, to pay interest rates two to five times higher than high street rates, the group added.

Claims made by the Government that 125,000 mortgage prisoners have already been helped must be verified, according to the campaigners..

The statement added: "Up until this point only a handful of mortgage prisoners have been helped in the UK Mortgage Prisoners' group.

"Mortgage brokers contacted by the campaign group say they cannot help either because they never received a letter from their closed book owner or because after nine years being trapped paying eye-watering rates they no longer pass high street lending criteria.

"UK Mortgage Prisoners' members have anonymously stated that this amendment is the difference between feeding their children, themselves, or continuing to rely on food banks."

A Treasury spokesperson said: “We know that being unable to switch your mortgage can be incredibly difficult but a cap on standard variable rates is not the right solution.

“Thousands of borrowers will now find it easier to switch to an active lender or continue interest only payments thanks to recent rule changes by the Financial Conduct Authority – and we have been working closely with the industry to ensure firms are helping those who are eligible to switch.”

The spokesman added: "FCA data shows that borrowers with inactive firms - who are up to date with payments and cannot switch - are paying on average just 0.4% more than similar borrowers in the active market.

The statement added: "The SVR cap is not a proportionate solution – it is only likely to help a small number of borrowers but could have implications for the wider market and other borrowers. It also does not reflect any potential lending risk mortgage prisoners pose.

"It would be unfair to cap rates for inactive lenders as it may lead to many more borrowers on the active market (for example, those in arrears) paying more than if they were with an inactive lender."

"The Government worked closely with the FCA on recent rule changes (announced in October) that make it easier for borrowers to switch from an inactive lender to an active lender in the same group by removing some of the regulatory affordability barriers to accessing new deals. The rules also help borrowers coming to the end of their interest-only mortgage by allowing them to continue making payments for 12 months rather than selling their property during this uncertain time.

The statement added: "FCA data shows that of the 250,000 borrowers with inactive lenders, around 125,000 would already be able to switch (even prior to the modified affordability assessment) as they would likely meet the risk appetite of active lenders.

"The FCA estimates a further c.14,000 will benefit from the introduction of the modified affordability assessment, but that c.55,000 would be eligible to switch under the new rules if they wanted to."