A single regulatory framework will help to free Britain's mortgage prisoners - Greg Wright

THESE are bleak times for millions of people as the pandemic appears set to retain its icy grip on Britain’s economy into the winter.
Many mortgage prisoners are suffering from deep emotional distress.Many mortgage prisoners are suffering from deep emotional distress.
Many mortgage prisoners are suffering from deep emotional distress.

One group is facing particular hardship, thanks to misjudgments made by greedy fools more than a decade ago.

The UK’s mortgage prisoners have been trapped on crippling interest rates since the global financial crisis.

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While rates were being slashed for other consumers to support them through austerity, mortgage prisoners faced rate increases at a time when their finances were being stretched towards breaking point.

The campaigning group UK Mortgage Prisoners has provided a report to the Financial Conduct Authority (FCA) detailing the financial hardship this has caused.

The group has written to the Government in the wake of the pandemic, to outline the extra financial stress and emotional impact this will have on mortgage prisoners.

Many are self-employed and face losing their businesses. Others are “precariously employed” within vulnerable sectors or zero-hour contracts.

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One mortgage prisoner quoted in the report said: “I can earn zero money if I can’t go out to work, and I have an expensive mortgage, wife, and two kids to feed. We also have a small shop that is going to be affected hugely, if we have to close it down. It is going to be a massive financial struggle.”

Mortgage prisoners are trapped into paying higher rates of interest to their borrower because they cannot meet affordability tests, brought in after the financial crisis, despite making payments on their current, higher interest rate mortgage.

This has caused particular problems for borrowers who have found their debt sold on to unregulated private equity firms - the so-called vulture funds - that do not offer new mortgages or more affordable rates.

It’s such a significant issue that a Parliamentary group has been established to fight on the prisoners’ behalf.

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Seema Malhotra MP, co-chairman of the All Party Parliamentary Group on Mortgage Prisoners (APPG) said: “Mortgage prisoners are overpaying by hundreds or thousands of pounds each year, causing a significant negative impact on themselves and their families, leading to constant stress and relationship breakdown.”

There have been repeated calls for tough regulatory action to enable mortgage prisoners to enjoy the same rights as other consumers.

The FCA has been carrying out consultation on new rules to help some borrowers in closed mortgage books to have more options.

The APPG has called for banks to be forced to apply streamlined affordability tests when allowing mortgage prisoners to switch to better deals offered by the same banking group.

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A proposal from the FCA to allow firms to use this streamlined approach when a mortgage prisoner is switching within a larger group has been welcomed by MPs. However, the APPG is convinced that the only way the FCA is going to help mortgage prisoners is by making it compulsory.

The APPG believes the FCA left a “serious loophole” in its rules because, according to the MPs, it allows large banking groups to hold mortgage prisoners in separately authorised subsidiaries and exploit them by charging higher interest rates.

Ms Malhotra added: “Unfortunately, what is glaringly missing here is any help for the tens of thousands who are caught with vulture funds, and who have no hope of accessing better deals with their existing provider unless the FCA intervenes to cap interest rates.”

UK Finance, the trade body for the financial services sector, has previously said it is working with its members, the FCA and Government to find solutions that help customers with mortgages provided by firms that are no longer active in the market.

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The mortgage prisoners’ report is essential reading for anyone who cares about the future of financial services in Britain.

The group is right to campaign for one regulatory framework for all mortgage holders, and an immediate end to vulture fund sales.

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Thank you

James Mitchinson

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