Local Yorkshire MPs are challenging the government to live up to a promise to help homeowners trapped paying high-interest rates because the treasury sold their mortgages to unregulated firms.
An estimated 250,000 homeowners are forced to pay standard variable interest rates, and that means they cannot switch to a better deal. These are well above what a competitive mortgage would charge, but moves to ease their plight are being blocked.
The government has passed an amendment to the ‘Financial Services Act’ to cap rates for borrowers in that position, known as ‘Mortgages Prisoners’. However, the government whips are instructing Conservative MPs to vote against the amendment in the House of Commons on Monday.
Two months ago, Rishi Sunak promised to look at “workable solutions” for the homeowners. But the treasury claims the SVR cap would be ‘unfair’ on other borrowers.
Since the financial crash, tougher affordability checks have made it hard to change lenders if your mortgage is large compared to your house price, if you’re close to retirement or have bad credit. But most mortgage borrowers can still switch to a cheaper deal on lower interest rates with their existing lender.
However, an estimated 250,000 borrowers from Doncaster and the surrounding areas, such as Rotherham, Goole, Howden, and Brough have seen their home loans sold by the Treasury to unregulated firms that do not offer new mortgage deals.
As a result, they are trapped by their mortgage, forced when their initial deal ends to still be on a high standard variable rate – where the payments can be double or treble of what they would pay in a competitive mortgage.
In Yorkshire, a couple (who doesn’t want to be named) – let’s call them Sharon and Peter, purchased a home in 2006 with a mortgage with Northern Rock, and at the time, the firm was the leading loan approved and regulated by the Financial Services Authority in the country. However, in 2008, after Northern Rock had been nationalised, rates jumped as they went on to the lender’s standard variable rate.
Because Sharon and Peter had borrowed a large sum compared to the price of their home, known as high loan-to-value, they couldn’t switch lenders. Their mortgage went up overnight and doubled.
I suffered depression over it. I had three jobs over this period since then and my husband was trying to study, it’s been so difficult, I can’t express how hard it’s been for us a family.
Another year later hundreds of thousands of homeowner’s mortgages was moved to Northern Rock Assets Management, which had been separated from the retail arm of the company, and later sold to Virgin Money. It warned that distressed mortgage lenders were selling books of mortgages to unregulated hedge funds and private equity firms.
Attracted by the possibility of purchasing assets at a discount, they were unregulated and therefore not bound by the borrowers, and in some cases, the lack of regulation and the possibility of acting in this way to extract profit may be a contributing factor to firms’ desire to purchase these mortgages.
The onward sale of regulated mortgage contracts may also be seen as unfair, as it leads to a reduction in protections for some consumers, both in absolute terms and relative to other borrowers who have purchased similar financial services.
Under the coalition government of 2010-15, Chancellor, George Osborne was keen to re-privatise assets nationalised in the 2008 crisis. However, in 2014 the treasury cast aside those concerns and sold a book of 270,000 Northern Rock Mortgages, amounting to £13.5bn of outstanding home loans.