Please support #Action4Solutions Campaign by signing our open letter to the Chancellor
During the banking crisis of 2008, many (but not all) of our mortgages were with high street lender, Northern Rock. This was subsequently nationalised and further lending was suspended which put stop to internal product transfers. This meant that our mortgages reverted to the more expensive standard variable rate (SVR). Pre-crash, the SVR was set at 1.5% above the Bank of England base rate. However, UKAR, acting for the Government, increased this margin to 4.5%. Given the difficult economic conditions – housing market, job losses and business closures – many borrowers could not switch to a better deal elsewhere. This was then exacerbated by the Mortgage Market Review (MMR) which introduced a retrospective stress test for new borrowing. This meant that new mortgage applicants would have to prove their income could withstand rates if they increased by 2 -3 %. So, whilst many of our members have been paying between 5- 7% SVRs, we are consistently told that we cannot afford to pay interests which are set at significantly less.
Many of our mortgages have now been sold to private equity firms with no licence to lend and who are not regulated by the FCA. We are trapped and left at the whim of vulture funds whose sole incentive is to maximise shareholder returns. Additionally, those struggling to pay their mortgage during the 2008 crisis, who accessed the government Support for Mortgage Interest (SMI) payments, had to take this as a loan to be paid back at the end of the mortgage term. These borrowers cannot remortgage now as new lenders expect this to be paid in full first.
Imagine if the same were to occur in the current crisis to the extent that:
- Banks were bailed out instead of protecting jobs and furloughing staff
- Banks increased SVRs instead of reducing them in line with BoE
- Mortgage holders coming to the end of their introductory terms were left stranded on these higher SVRs
- Legislation was introduced to make it harder to remortgage instead of introducing legislation that compels banks and other lenders to provide mortgage holidays and payment freezes
- Those who struggled to pay their mortgages during an economic crisis were forbidden product transfers and then sold off to private companies with no lending licence and left to pay crippling interest rates
In our COVID-19 impact report, we provided evidence of the additional financial hardship our members are now experiencing – whether employed, self-employed or retired. Additionally, many of our members are Key Workers. They face the most harrowing of circumstances each day in their jobs, saving the lives of others while risking their own and those of their families. They continue to do this under severe financial pressure and on top of the emotional pressure that being a mortgage prisoner already encapsulates – as highlighted in our mental health report. We are concerned that this current crisis may create many more mortgage prisoners – particularly where mortgage holders may have to rely on SMI payments in the aftermath.
We are calling on the Chancellor to act now to help mortgages prisoners. Back bench debates and FCA consultations have had little to no effect. The Treasury states that it would consider extending the regulatory perimeter to unregulated entities ‘where it sees potential harms to consumers are occurring’. Yet this ignores the ACTUAL harms mortgage prisoners are already experiencing as outlined in our mental health and COVID-19 reports. In effect, any solutions proposed have yet to translate into anything tangible for mortgage prisoners.
We believe there are simple yet effective solutions to our situation:
Stop selling British mortgages to vulture funds
Extend the regulatory perimeter
Cap margins on SVRs
Bring our mortgages back under active lenders to give us choice to product transfer
We would also propose that bringing all mortgages back within high street, regulated lending would be of significant benefit to the post-COVID economic recovery of our country. Many mortgage prisoners are paying monthly costs of £100s additional on their mortgages. Fairer mortgage rates would mean many 1000s of mortgages prisoners injecting their disposable income back into the economy.
We are respectfully requesting that the Chancellor act now to support mortgage prisoners in the short and longer term so that we are not forgotten within yet another crisis, when we are still living in the one of the past.