Thousands of mortgage customers of now-defunct banks who had their loans sold on after the financial crisis are hoping new moves by regulators and MPs will free them up to shop around for cheaper deals.
These borrowers, dubbed “mortgage prisoners”, include Jayne Emsley and her husband, who took out a Northern Rock mortgage in 2006 and are now with Landmark Mortgages, which is owned by US-based private equity firm Cerberus.
The borrowers say they have been badly treated by the government, which agreed sales to unregulated lenders, and are suffering financially because they are being denied the chance to switch to lower rates. Many are on standard variable rates of around 5% and paying hundreds of pounds a month more than if they were on the current best-buy deals. A sizeable chunk of them were with Northern Rock and Bradford & Bingley before the two lenders failed in the financial crash. Their loans were picked up by the government and held in a firm called UKAR, but many have been sold on to other organisations, including banks and funds.
These sales, and borrowers’ treatment since, are now the subject of an inquiry by a group of MPs, while City regulator, the Financial Conduct Authority (FCA), is looking at changing the rules to make it possible for them to switch lenders.
The FCA estimates that around 150,000 borrowers are stuck with mortgages they can’t move from, even though they have kept up with repayments. New lenders are reluctant to take them on if they do not meet affordability checks, and the thousands whose mortgages were sold to unregulated lenders are not being offered new deals.
Mortgage prisoners fall into four main categories:
• Those who don’t meet affordability rules because their circumstances have changed.
• Those who don’t meet affordability rules because the rules have changed.
• Those in negative equity.
• Those who had a Northern Rock “Together” loan and can’t afford to pay it off when they move.
Borrowers who were able to get mortgages back in 2007 have found that tougher affordability checks, which were introduced in 2014, have prevented them getting new deals.
Emsley and her husband took out their Northern Rock mortgage two years before the bank was taken into state ownership. They want to move to a new home nearer to where she works, but have been unable to find a lender willing to take them on.
“When we found out they were going to sell the mortgages there was a huge sigh of relief, but then they sold us to a non-lender, which couldn’t offer new deals,” she says.
The couple have equity worth 50% of their home. “I’ve never missed a payment,” Emsley says. “I was employed when I had my child 12 years ago, but I now work for myself and lenders ask for my business accounts.”
She says the business account goes in and out of its arranged overdraft, which lenders query; brokers have also suggested that the cost of running a car is preventing them from getting a loan. She calculates that she has paid £40,000 more in interest than if she had been able to switch to one of the 2% mortgages on the market, yet has been told “over and over again” that a cheaper mortgage is unaffordable.
“I do wonder if as soon as they hear ex-Northern Rock or Landmark, they are put off,” she says.
Emsley is part of a group of mortgage prisoners lobbying for change. She says the group includes borrowers who have plenty of equity in their homes, as well as some who took out the Together mortgage, which allowed borrowing of up to 125% of the value of a property.
As well as Landmark Mortgages, borrowers have also been moved to a firm called Tulip and to parts of TSB and the Co-operative Bank. Those with TSB and the Co-op Bank have discovered they are not allowed to move to either bank’s normal mortgage range. The Co-op Bank has customers held in a company called Mortgage Agency Services Number Five Limited (MASNF), which has its own FCA authorisation, but TSB’s Whistletree division is a brand of it.
Unlike the Co-op Bank’s holding company, Whistletree has offered new loans since late 2017, though these are at a higher rate than TSB’s mainstream mortgages.
TSB says: “Whistletree customers have never been prevented from moving their mortgage and over a third of them have either moved to a new provider or redeemed their mortgage in the past three years.”
The Co-op Bank says MASNF is a separate legal entity. It has signed up to a voluntary code to help mortgage prisoners and is working with the industry and FCA on further steps.
The regulator recently set out plans to make it easier for mortgage prisoners to get cheaper home loans. These proposals will help borrowers who are up to date with their mortgage payments and want to move to a more affordable deal on their current home without borrowing more money. Under the plans, banks, building societies and other lenders will be allowed to modify affordability checks so they can make “a more proportionate assessment” of whether the borrower can afford the new loan.
It also proposes that inactive lenders and firms not authorised to lend will be forced to write to customers to tell them about these changes, but would have 13 months to do so.
Emsley and other borrowers have mobilised through social media and have a Facebook group (@mortgageprisoners). They have successfully lobbied MPs to look into the problem and an all-party parliamentary group will hold its first evidence sessions in early June.
Some of the actions the group are calling for, including compensation from the government or lenders, seem optimistic. But the MP leading the inquiry, Seema Malhotra, says nothing is off the table. “We will be looking to make recommendations about how to deal with the most vulnerable cases and about whether the restrictions people face are right and fair,” she says. “We will be looking at whether there could be better remedies for people who are in this position and asking what we need to do to make sure this doesn’t happen again.”
Malhotra adds that the issue is complex, with many lenders and situations involved. “There are mortgages that the government has not sold yet, and we want to look at how we are going to prevent consumers ending up in this situation again through no fault of their own.”
David Hollingworth at mortgage broker London & Country welcomes these initiatives. He says that after the original mortgage market review in 2014, lenders were given special provisions to offer deals to people who did not fit their standard rules. But lenders did not use these to take on borrowers from other companies. And when the European mortgage credit directive came into force in 2016, lenders interpreted it as meaning they could not take on these customers.
But Hollingworth questions what the FCA can do to make lenders take on these borrowers.
The parliamentary group on mortgage prisoners wants to hear from people stuck with an inactive lender. Email APPGmortgageprisoners@ gmail.com or visit the website appgmortgageprisoners.com
