EXCLUSIVE Mortgage prisoners have suffered for 14 years without any help at all. They were victims of a lack of protection and regulation before 2008 and they’re still paying for that now’

Mortgage prisoners are being ‘pushed off a financial cliff’ by rising interest rates and ‘completely forgotten about’ by the Government, warn campaigners

Around 195,000 mortgage prisoners, whose loans are with increasingly “lawless” inactive lenders, risk losing their homes because they are being pushed off a financial cliff by rising interest rates.

Of those 195,000, the regulator, the Financial Conduct Authority (FCA), says 66,000 borrowers may be able to switch to a new mortgage deal while 47,000 are unable to even though it would benefit them to do so.

A mortgage prisoner is a homeowner who has been trapped paying high-interest rates since the global financial crisis of 2008. Sometimes they are also people with poor credit or low income which would make it difficult for them to get a mortgage today.

Their mortgages were taken out with collapsed firms – dubbed “zombie lenders” – such as Northern Rock or Southern Pacific Mortgages Limited (SPML), an arm of Lehman Brothers, who no longer offer mortgages.

These mortgages are now owned by other companies and must still be repaid. They are often high-interest and high loan-to-value, and would not be allowed as lending restrictions have been tightened since the crisis.

Rachel Neale, the lead campaigner at Mortgage Prisoners UK – a group of around 5,000 people affected by this issue -, says the true number is higher. “The FCA have counted the number of mortgages but there is often more than one person on a mortgage,” she told i. “One mortgage can affect two or even four people.”

Campaigners warn that mortgage prisoners are being pushed to the brink financially and have been “completely forgotten about” by the Government.

Interest rates have been rising since December 2021 due to the global inflation crisis and the Bank of England’s decision to repeatedly increase their rate. However, in the UK, average mortgage rates surged to 6.65 per cent in October 2022 after former prime minister Liz Truss’s “mini-Budget” caused panic in financial markets. In October 2021, the average rate had been 2.25 per ent.

“Mortgage prisoners have suffered for 14 years without any help at all,” Ms Neale continued. “They were victims of a lack of protection and regulation before 2008 and they’re still paying for that now.”

Ms Neale fears for the wellbeing of mortgage holders stuck on high-interest rate deals. “We had a suicide in our group a couple of weeks ago,” she told i. “It was because of the stress of rate rises.”

i has spoken to one family from south London who took out a variable interest-only mortgage with SPML – who no longer offer loans but are now owned by Kensington Mortgages – in 2007. They currently face having their home repossessed.

i has also spoken with a single woman in her 60s from Norfolk who took out a mortgage with SPML in 2007 and is currently struggling to pay it as her interest rate continues to increase beyond what she can afford. She fears she will eventually have to sell her home.

Part of the problem is that many mortgage prisoners’ loans are not with active banks but instead with what is known as “non-lending entities”. These effectively function as debt collectors now.

In 2021, the FCA published guidelines as to how mortgage prisoners should be treated. Sometimes, inactive lenders are owned by active lenders and even high-street banks. The FCA urges active lenders who own entities such as Southern Pacific Mortgages to offer mortgage holders a new deal where possible.

However, campaigners say that the FCA’s guidelines are not being enforced. “They can’t actually intervene and help people,” Ms Neale told i.

“Inactive lenders are becoming lawless,” she added. “We are calling for a moratorium on repossessions for mortgage prisoners.”

The FCA can’t force any firm to offer mortgage prisoners a new deal. That remains a commercial decision for lenders which the FCA has no input on and cannot enforce.

An FCA spokesperson said: “We recognise that consumers are facing real challenges resulting from increases in the cost of living.”

“We expect firms to follow our rules and treat borrowers, including those in financial difficulty fairly. Repossession action should only be taken as a last resort, if all other efforts to help the customer have failed. Repossession levels currently remain low.”

“Borrowers who are experiencing financial difficulty, or expect to, should contact their lender as soon as possible or seek support from MoneyHelper.”

Last month, the Bank of England raised the interest rates again. The bank rate went up by 0.5 per cent to 3.5 per cent. Ahead of that decision, on December 7, the Chancellor, Jeremy Hunt, met with major lenders as well as the FCA to discuss how anyone struggling to pay their mortgage can be supported.

At the meeting, it was agreed that lenders should help customers who are up to date with payments to switch to a new mortgage deal without another affordability test.

Ms Neale and Ms Malhotra warn that this won’t help mortgage prisoners.

“The new FCA guidelines won’t deliver help to the 200,000 mortgage prisoners as they don’t cap high standard variable rates or require the vulture funds to offer fixed rates,” Ms Malhotra said.

Ms Neale also told i that Mortgage Prisoners UK had been shut out of a Downing Street mortgage summit held to discuss rising interest rates. “We requested a seat at the table but got refused because it was only for active lenders,” she said. “Mortgage prisoners are not being offered help even though active lenders are being told to help customers to stop them losing their homes.”

A Treasury spokesperson told i that ultimately lenders must make their own decisions.

“The Government has already taken steps with the Financial Conduct Authority to update mortgage lending rules, removing the regulatory barrier that prevented some mortgage prisoners, who otherwise may have been able to switch, from accessing new products,” they said.

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