Britain's mortgage prisoners are facing poverty as collateral damage of the global financial crisis, group claims

Mortgage prisoners are trapped with their current lenders, which are often inactive or not authorised to offer new products, leaving many paying higher rates than they would otherwise need to.

They are often rejected when they apply for cheaper mortgages because they do not meet toughened borrowing criteria brought in after the 2008 financial crash, even if they are keeping up with repayments. Mortgage prisoners have called for Government action to ease their plight after the The Bank of England raised interest rates to 0.5%.

In a statement, the group representing Britain’s mortgage prisoners said: “The announcement of yet another increase to the base rate of interest from the Bank Of England, only a month after the previous rate rise will have a significant impact on the lives of UK Mortgage Prisoners and those currently stuck paying the Standard Variable Rate (SVR) on their mortgages.

“The last increase was passed on immediately by the majority of mortgage administrators resulting in increased monthly mortgage payments.

“The Treasury and the Minister John Glen fail to understand the detriment their continued lack of intervention is causing the most vulnerable group of homeowners,’’ the statement said.

“Mortgage Prisoners and those stuck on SVRs already pay extortionate interest rates, between almost 5% to 9%, and have done so for the last decade while the mainstream mortgage market have benefited from stable, historically low-rate mortgages. Now we expect the interest rates to be pushed even higher with this announcement. This group of homeowners are effectively standing on the edge of a cliff, holding their breath with each announcement, in the futile hope that their interest rates will not rise anymore.

The statement added: “It is shameful and we are deeply concerned by the increasing levels of distress and poverty we see daily within the group as we continue to be the collateral damage of the global financial crisis almost 15 years ago. We call on the Government and the FCA to stop our mortgage SVRs (standard variable rates) rising any further. It is unfair, unethical and causing direct harm to many.”

Responding to the statement, a Treasury spokesperson said: “We know that being unable to switch your mortgage can be very difficult. The Government continues work to determine if there are any practical and proportionate solutions for affected borrowers. Borrowers may find it easier to switch to an active lender thanks to rule changes by the Financial Conduct Authority and may wish to make use of free resources available via MoneyHelper to check their eligibility.”

According to the Treasury, mortgage prisoners pay an average interest rate of 4.3%, with most paying rates of 4.1% and 4.5%.

Most affected mortgages date from before 2007 when the base rate was 5.75%, the Treasury said.

“Almost all borrowers with inactive firms are paying a lower rate than they signed-up to at loan origination,” the Treasury said.

The Financial Conduct Authority (FCA) understands the difficult circumstances mortgage prisoners are in, according to a spokesman.

The spokesman added: “Last year we provided data to help the Government consider whether there are practical and proportionate solutions to help these borrowers and will continue to support them to do this.

"Any borrower who finds themselves struggling to make their mortgage payments should contact their provider at the first opportunity to agree a solution that is appropriate to their individual circumstances. Our rules are clear that firms must treat customers fairly.”