The House of Lords has voted in favour of an amendment to the Financial Services Bill which could see interest rates capped for some mortgage prisoners.
Peers have defeated the Government in demanding help for an estimated 250,000 “mortgage prisoners”.
The House of Lords backed by 273 votes to 235, majority 38, a change to the Financial Services Bill, which would require the regulator to introduce an interest rate cap for affected households.
It would also ensure in some cases access to fixed-rate deals.
The move follows calls for action to assist so-called mortgage prisoners 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 House of Commons needs to approve the change before it can take force.
MoneySavingExpert.com and its founder Martin Lewis have campaigned for years for more help for those who are stuck. During the debate, various peers referenced research from an LSE report on mortgage prisoners funded by Mr Lewis
Mr Lewis, who is the founder of MoneySavingExpert.com, said: "I am delighted that the Lords has seen the injustice that has been heaped on hundreds of thousands of mortgage prisoners. While the Government chose to bail out the banks in the financial crisis, it has never bailed out the banks' customers who were victims of that collapse. Mortgage prisoners have been left paying 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 this causes. Coupled with the devastating impact of the pandemic on people's finances, the vote from the Lords is right to push for urgent action to prevent the situation from becoming catastrophic.
"The independent LSE report I funded has a cogent argument as to why an SVR cap isn't a balanced long-term solution. But in lieu of anything else, I believe for those on closed-book mortgages it is a good stopgap while other detailed solutions are worked up – so this vote is an important move.
"And while it will be tough to get the Commons to enact it against government wishes, at the very least it ramps up the pressure on the government to come up with alternative solutions, at speed, which Rishi Sunak promised me, on the record, that he would do."
Proposing the amendment to the Bill, Liberal Democrat peer Lord Sharkey said: “This has all gone on much, much too long and it has caused and continues to cause far too much misery and desperation.”
Labour peer Lord Stevenson of Balmacara said: “It is clear that a significant number of people, through no fault of their own, cannot exercise the choices about their mortgages that the rest of us can.
“Someone needs to take responsibility for providing a fair outcome for those that are in a position to take advantage of it.”
Responding, Cabinet Office Minister Lord True said: “The Government does not underestimate the stress of being unable to switch your mortgage can cause.”
It was seeking ongoing solutions to the problem, he told peers.
But Lord True added: “We must be fair to all borrowers in any steps that we take.”
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