MPs call for probe into alleged exploitation of mortgage prisoners by unregulated funds

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.

The All Party Parliamentary Group on Mortgage Prisoners has written to the Competition and Markets Authority and the Financial Conduct Authority to call for an immediate investigation into “price gouging” by unregulated funds and inactive lenders.

The APPG is calling for a market wide margin cap of 2 per cent above the Bank of England base rate on all mortgage standard variable rates to be introduced “in order to provide immediate and effective relief to hundreds of thousands of homeowners that have been trapped on crippling interest rates for over a decade”.

Seema Malhotra MP, the co-chairman of the APPG on Mortgage Prisoners, said: “Too many mortgage prisoners have been exploited by being held on high standard variable rates or have seen their rate increased with no justification.

“The CMA and the FCA should intervene quickly to cap the interest rates being charged. The coronavirus has led to unprecedented strain on family finances and we need to help mortgage prisoners, including many key workers, get a better deal.”

Kevin Hollinrake MP, the co-chairman of the APPG on Fair Business Banking said “It is simply unfair that hundreds of thousands of UK individuals, couples and families are locked out of a mortgage market that the rest of us take for granted. Even if lenders were following the new guidance on the affordability test, the FCA admits that this will only help a small fraction of mortgage prisoners. A cap on the SVR is the simplest and quickest way of addressing this injustice.”

In a statement, the APPG added: “A similar market intervention was made to protect consumers from price gouging by energy companies, and the APPG believes that the case for intervention in the mortgage market is even more pressing, as the extra costs to any mortgage holder on a SVR will be in the hundreds, even thousands, of pounds per year for every household on an SVR.”

The recent relaxation of affordability rules has yet to benefit any of the 250,000 mortgage prisoners, according to the APPG.

An FCA spokesperson said: “We have received the letter and will respond.”

The APPG on Mortgage Prisoners said that a survey by the campaigning group UK Mortgage Prisoners highlighted the “catastrophic consequences “ for key workers who are trapped on high SVRs. Many of these workers have been risking their lives during the pandemic, the MPs said.

The group said: “It is time that we say enough is enough and take clear, decisive action.”

A CMA spokesperson said, “We welcome information about market practices and consider issues that are brought to us.”

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