I feel suicidal as I face losing my home, mortgage prisoner tells Government

She told The Yorkshire Post: "I became a mortgage prisoner in 2012 when my husband and I separated. He moved out and refused to pay his half of the mortgage. I started the Northern Rock mortgage December 2006, had a fixed rate for five years, after that we were unable to get another fixed rate and was stuck on the standard variable.

She added: “My monthly payment in December 2021 was £621, today it is £1269. My salary per month after tax is £1,036. I have, for the first time in 16 years of having a mortgage, gone into arrears as I am completely unable to afford my payments.

"Once you reach three months arrears, you meet litigation criteria, meaning I am likely to soon lose my home and there’s nothing I can do about it. It makes you feel suicidal.

"I am now working two jobs having to do evenings and weekends after my day job while looking after four children alone and I still can’t afford my full mortgage payment, I feel physically sick every time I hear they are thinking of increasing it (interest rates) again.

“The Government needs to do something to help those who are unable to remortgage elsewhere due to change in circumstances and make companies offer more affordable rates. What we are being charged is criminal and is causing despair where there needn’t be any.

"I feel hopeless, like there is no end in sight and feel there will be no other outcome than losing my home, where all of my children have been born, because of companies charging more than 8 per cent to 9 per cent in interest rates and crippling people through sheer greed."

Mortgage prisoners have been trapped on high rates since the 2008 financial crisis. Many have loans that were sold by the state to 'closed book' inactive lenders, which are largely investment companies that are not regulated to lend new mortgages, making it difficult for them to move to cheaper rates. Borrowers entered into loans with lenders that subsequently failed and they have often been rejected when applying for cheaper mortgages because they do not meet toughened borrowing criteria brought in following the crisis.

In March, a report, which was shared with the Treasury and the Financial Conduct Authority, put forward costed solutions to the “horror” of the situation facing mortgage prisoners. The report by the London School of Economics and Political Science (LSE) was funded by a donation of almost £60,000 by consumer champion Martin Lewis, and commissioned by MoneySavingExpert. The report concluded that prisoners have suffered financially, mentally, and physically for more than a decade.

Groups representing mortgage prisoners have told MSE that some have even sadly taken their own lives. The report concludes the Government has made £2.4bn from the sale of these loans. The LSE report has proposed solutions that would help prisoners eventually remortgage with active lenders. These include free comprehensive financial advice for all prisoners and interest-free equity loans to clear the unsecured element of Northern Rock's 'Together' loans. Another proposed solution contained in the report includes Government equity loans on the model of Help to Buy, which would be interest-free for the first five years. A proposed fallback option would lead to a Government guarantee for active lenders to offer prisoners new mortgages.

The LSE report estimates these solutions could cost between £50m and £347m over 10 years depending on take-up. While the overall outlay would be £370m to £2.7bn, this is reduced to £50m to £347m net, as the Government would hold some equity loans itself.

Launching the report in March, Mr Lewis said: "This report lays out starkly that the state sold these borrowers into poverty, knowing it could cause them harm, and made billions doing it."

Rachel Neale of the Mortgage Prisoners action group said the group had met with the Treasury to discuss the LSE report.

She told The Yorkshire Post: “Unfortunately the solution they wanted to focus on, or at least talk about, was the free debt advice. This is a nonsense

"We are being unfairly treated and trapped with companies that will not allow us to move. We are unfunded and volunteers who ourselves are struggling. Families are on a cliff edge and cannot take another rate rise."

An HM Treasury spokesperson said: “We have updated mortgage lending rules - removing the barrier that prevented some mortgage prisoners from being able to switch – and introduced significant financial and legal protections for those most in difficulty.

“We are open to further practical and proportionate solutions to help mortgage prisoners, working with the Financial Conduct Authority and industry to carefully consider all proposals put forward.”

The Financial Conduct Authority's review into mortgage prisoners makes clear that the reason these consumers are unable to switch are varied and complex, the statement added. As such, the Government is not aware of a single measure to address the circumstances of this entire population of mortgage holders without being unfair to other borrowers.

The government has already worked with the FCA to implement changes to mortgage lending rules, removing the regulatory barrier that prevented some mortgage prisoners from accessing new products, the statement added.

"These rules should allow customers to switch to an active lender as long as they meet the lender’s risk appetite and certain criteria, such as not looking to borrow more.

“The Government remains open to further proposals to help mortgage prisoners. However, ultimately, the pricing and availability of mortgages is a commercial decision for lenders in which the Government does not intervene. As such, we cannot force lenders to lend to borrowers that sit outside of their risk appetite.

“If mortgage borrowers do fall into financial difficulty, Financial Conduct Authority (FCA) guidance requires firms to provide support through tailored forbearance options.”

The Government said it has also taken a number of measures aimed at helping people to avoid repossession, including Support for Mortgage Interest loans for those in receipt of an income-related benefit, and protection in the courts through the Pre-Action Protocol, which makes it clear that repossession must always be the last resort for lenders.

The statement added: “The Government is also committed to helping people that are in wider financial difficulty, and recognises the important role that debt advice providers play in assisting people in problem debt. This is why we have continued to maintain record levels of debt advice funding for the Money and Pensions Service, bringing their budget for free-to-client debt advice in England to over £90 million this financial year.”