An all party parliamentary group has been set up to support mortgage prisoners trapped by changes to lending rules.
The founding members are Seema Malhotra MP and Charlie Elphicke MP.
A mortgage prisoner is someone unable to switch mortgage lender and typically stuck paying a high interest rate. There are an estimated 200,000 mortgage prisoners, including more than 120,000 former customers of Northern Rock whose loans were sold off by the government and UK Asset Resolution (UKAR).
Lord McFall wrote to the government, UKAR and the Financial Conduct Authority in 2016 to express concern about the lack of safeguards for the mortgages being sold.
However, since then the mortgages of thousands of former Northern Rock customers have been sold to unregulated lenders and vulture funds. Many have had applications for cheaper deals rejected on affordability grounds, despite the monthly repayments being less than their current deal.
Elphicke says the group have heard from mortgage prisoners, who told MPs about the serious financial and psychological impact they had suffered.
Many had paid thousands of pounds more in interest than necessary and some face losing their homes, leading to stress, ill-health, depression, relationship breakdown, and damage to their businesses and credit records.
The APPG says the Treasury and UK Asset Resolution should not be selling mortgages to unregulated lenders and vulture funds, and should be selling loan books to active lenders willing and able to give borrowers new deals and fixed interest rates.
The FCA has published proposals to reform the affordability test, but lenders will not be forced to apply it for customers trying to switch.
Elphicke read a 10-minute bill in the House of Commons last week. He’s calling for computer driven affordability tests to be ditched in favour of “grandfathering” affected borrowers against later regulatory rules.
This exemption would allow mortgage prisoners to switch lenders without meeting the affordability assessment brought in by new regulations. The mortgage would also be permitted without any regulatory penalty for the bank.