Mortgage borrowers trapped at interest rates above 5% say they are “disappointed, desperate and betrayed” after MPs voted against a cap on how much lenders can charge their fees.
The plan to cap the Standard Variable Rates (SVRs) charged by inactive lenders was an amendment to the Financial Services Act added in the House of Lords to help a group of approximately 250,000 borrowers known as mortgage prisoners.
Many originally took out their home loans from lenders bailed out during the financial crisis, including Northern Rock and Bradford & Bingley, and have since resold their mortgage to another provider.
As a rule, these providers do not offer new, cheaper offers to which customers can switch.
As a result, borrowers pay SVRs, which are often above 5%, while the Bank of England’s base rate is 0.1% and the average cost of a two-year fixed-rate mortgage, according to data, is 2.6% fixed money facts.
Problems such as negative equity, an interest rate mortgage, missed payments, or changes in circumstances prevented them from moving to a new lender.
The change proposed an upper limit for SVRs that is two percentage points above the base rate, which would have meant a current wage rate of 2.1%.
On Tuesday, however, MPs voted 355 to 271 to reject this.
The UK Mortgage Prisoner Action Group said the outcome was “utterly disappointed, desperate and betrayed”.
The vote reads: “A continued failure by the government to find immediate solutions and correct the failures of successive governments, where in 2008 we pay for the injustice of regulated banks, raise our interest rates, and then sell our homes to foreign and domestic vulture funds” .
Martin Lewis, the founder of MoneySavingExpert who supported the group and funded research into their situation, tweeted that he was sad that the amendment had fallen as it would leave up to 250,000 people “stuck in financial hell”.
He had previously said that an SVR cap was not a “balanced long-term solution”. But instead of anything else, for those with closed-book mortgages, I believe that it is a good stopgap solution while other detailed solutions are being worked out. “
John Glen, Secretary of Commerce for the Treasury Department, spoke to Parliament that the Financial Conduct Authority (FCA) analysis found that half of the 250,000 borrowers with inactive businesses met the normal risk appetite of lenders and could switch without government intervention.
“Of the remaining 125,000 who cannot switch, 70,000 are behind and therefore could not close a new deal even if they were in the active market. These borrowers need to work with their lender to come up with an adequate repayment schedule, ”he said.
“The remaining 55,000, who work with inactive lenders and are up to date with their payments but unable to switch, pay, on average, only 0.4 percentage points more than similar borrowers for reversal rates with active lenders.”
He said the Treasury Department would work with the FCA to find out more about those who were up to date with payments but couldn’t switch.
HM Treasury said, “We know that not being able to switch your mortgage can be incredibly difficult. Many borrowers may find it easier to switch lenders thanks to recent rule changes by the FCA. We will work with the FCA to review the effectiveness of these changes and see if other practical and proportionate solutions can be found for these borrowers. “