E Transcon

Main Menu

  • Unsecured Personal Loans
  • Fixed Rate Loans
  • Variable Rate Loans
  • Debt Consolidation Loans
  • Capital

E Transcon

Header Banner

E Transcon

  • Unsecured Personal Loans
  • Fixed Rate Loans
  • Variable Rate Loans
  • Debt Consolidation Loans
  • Capital
Variable Rate Loans
Home›Variable Rate Loans›‘Everyone is nervous’: Mortgage prisoners fear rate hike in UK | Mortgages

‘Everyone is nervous’: Mortgage prisoners fear rate hike in UK | Mortgages

By Mary M. Cox
November 20, 2021
0
0

The ultra-cheap mortgage era appears to be drawing to a close as lenders do their cheapest deals in preparation for a Bank of England base rate hike. But it never started for thousands of borrowers. More than a decade after the financial crisis, these homeowners are stuck in the trap of paying well above average interest rates and unable to switch to a cheaper offer.

With predictions of a rise in the base rate before winter and rising other costs of living, many of these households – known as mortgage prisoners – are becoming concerned about how they will pay their monthly bills.

“Everyone is extremely nervous about the rate hike,” says Rachel Neale of the UK Mortgage Prisoners campaign group. “These people already have problems. Some use boards, others are about to take them back. “

A price war among lenders meant that until recently, if you had enough equity, you could tie yourself to an interest rate of less than 1%, while the average 10-year fixed interest rate had fallen to just 2.36%.

In contrast, those who stick to Standard Variable Interest Rates (SVRs) typically pay a rate of around 4.39%. Earlier this year MPs voted against a cap on SVRs that would have capped the amount lenders could charge to a rate of two percentage points above the base rate, which would have meant a current wage rate of 2.1%.

An increase in the base rate from 0.1% to 0.25% in either December or January was widely projected which would add about £ 12 to a mortgage of £ 150,000 a month. If the base rate increases to 1% and the lenders’ SVRs follow suit, the typical monthly home loan bill for the same property would increase by £ 71.

Many originally took out their home loans from lenders who had to be bailed out during the financial crisis

About 250,000 borrowers were thought to be mortgage prisoners, but earlier this year the city’s regulator, the Financial Conduct Authority (FCA), said it thought that number was an underestimate.

Many originally took out their home loans from lenders bailed out during the financial crisis, including Northern Rock and Bradford & Bingley, and have since resold their mortgages to another provider.

Most providers are “inactive”, which means they don’t offer new mortgages to switch to. Issues such as negative equity, an interest-bearing mortgage, missed payments, or changed circumstances have deterred people from switching to another lender despite intervention by the FCA.

Not only are the inactive lenders not offering new offers, but they also typically ask for higher SVRs than those of the mainstream lenders.

In 2007 customers lined up to withdraw their savings from a Northern Rock branch. Photo: Alessia Pierdomenico / Reuters

Paying a much higher interest rate than paying on the open market is not only frustrating, but it also affects other people’s finances.

“It’s not just the mortgage that is the problem: people can’t invest money for retirement,” says Neale. “When they go to a different type of lender, the fact that they are with an inactive lender creates a black cloud over them – they are basically with a debt collection company.”

Neale and some of the other members of the group helped more than 100 people renegotiate with their lenders over the past year, including one case where a desperate borrower was raised from a rate of 4.79% to 1.55%.

But they say more needs to be done to help the group and that the Treasury Department has let them down by allowing lenders to buy their mortgages with no guarantees of how much they will be charged .

Marc Jelfs and his partner are among those who have not been able to take advantage of the record low interest rates and are concerned about what will happen to their payments if the bank decides to act.

The Bank of England in London
Will the Bank of England raise rates before the end of the year? Photo: Thomas Krych / SOPA Images / Rex / Shutterstock

They took out a mortgage with Northern Rock in 2004. At that time it was possible to do a “self-assessment” – in which one only had to state the salary on the application form instead of proof of income – and like Marc was self-employed, they chose this option.

In November 2007, they were on the verge of closing a new deal with the bank when it was pulled – and then came the credit crunch. “We’ve been moved to a rate of 6.5% to 7%. My monthly payment was £ 1,100, interest only, ”says Marc. “It took three years and I got into debt with my visa.”

The family’s mortgage ended up in the bailed-out bank and then sold to a company called Cerberus, which bought up mortgages from the failed lenders. Despite guarantees that they can move on to better deals after the sale, borrowers like Marc found they were unable to move and stuck with the lender’s SVR.

“I now pay 4.18%, including a 0.25% discount, because I’m a good customer,” he says. “The interest is £ 682 a month and we have eight years on our mortgage. After that, my home will be taken from me. “

The interest rate is variable and can be changed at the discretion of the lender, and Marc fears an increase in monthly costs.

The house originally cost £ 110,000 and the family spent £ 50,000 on renovating it. It’s worth roughly £ 220,000-230,000 now so they have a lot of equity, but their damaged borrowing so far has told them not to even bother applying for a loan.

Seema Malhotra, the MPs from Feltham and Heston
MEP Seema Malhotra said: “In addition to the rising cost of living, mortgage detainees will have to raise their already high floating rates.” Photo: Alicia Canter / The Guardian

“We will have spent £ 280,000 on interest by the end of the mortgage and we will still owe £ 110,000,” he says. “My partner won’t even talk about it. She can’t believe that she could be homeless at 58. “

Seema Malhotra MP, a co-chair of the parliamentary group on mortgage prisoners, says the FCA and the government need to ensure borrowers have access to cheap fixed rates to give them security in repayment.

“In addition to the rising cost of living, mortgage detainees will have to hike their already high floating rates,” she says.

Earlier this year, the city regulator announced it would review the effectiveness of measures it has taken to make it easier for lenders to offer loans to mortgage detainees. These gave banks and building societies some flexibility in assessing affordability.

It also verifies the data it has on the number of mortgage holders and their payment. It is expected to report back later in November.

A Treasury Department spokesman said, “We know that not converting your mortgage can be incredibly difficult. Many borrowers may find it easier to switch to an active lender thanks to recent FCA rule changes.

“We will work with the FCA to review the effectiveness of these changes and see if other possible solutions can be found for these borrowers that are workable and proportionate.”

How a Lender Helps

The branch of the West Brom building society in Harborne Birningham
Bausparkasse West Brom offers a two-year fixed-rate contract from 2.19%. Photo: Steven May / Alamy

Many borrowers have had difficulty switching, but a lender has taken mortgage prisoners in and helped them get a better interest rate. Jonathan Westhoff, managing director of West Brom-based building society based in the Midlands, says when the FCA introduced new rules to enable switches, “we just knew it was the right thing to do”. – it is completely geared towards our purpose. “

Being a mortgage trapped can be financially less favorable in a month than a dramatic spike in energy bills

Jonathan Westhoff from West Brom building society

The company was the first to use the modified affordability tests and had to adapt its systems so that borrowers were not automatically blocked. “Even though it was at the height of the pandemic, my colleagues resolved this problem and we then formed a dedicated team to work on the mortgage prisoner cases as everyone is different and needs to be checked individually,” he says. Society has received “a steady stream of applications” from those affected, but Westhoff says it would like to hear more from them. “Some borrowers have saved up to £ 1,000 a month on their mortgage payments, which is an incredibly sizeable sum. and we are therefore sure that we can help a lot more, ”he says. Initially it was thought borrowers would go to larger lenders, but Westhoff anecdotally says it doesn’t seem to be and more needs to be done to raise awareness of the steps mortgage prisoners can take.

“We are very keen to stay close to the regulator’s review of the affordability of mortgages and continue to contribute wherever we can,” he says. “We understandably saw concern about the threat of soaring energy bills, but in some cases the effects of a mortgage prisoner in as little as a month can be more financially detrimental than a dramatic increase in energy bills; and these borrowers have to deal with both. “

Starting November 23, the company is offering mortgage prisoners a two-year fixed-rate contract from 2.19% for borrowing up to 75% mortgage lending value, which rises to 2.59% for 85% loans – both interest rates well below the SVR they pay probably. The offers have a fee of £ 499 but include free assessment and help with legal fees.

Westhoff adds, “We’re just a medium-sized lender, and when we first launched these products, we knew that because of our size, we could only do so much and it would take a whole industry to help can get more borrowers. Even so, we have significantly reduced the monthly payments of many borrowers who were mortgage prisoners and encourage anyone in the same situation to get in touch. “

westbrom.co.uk/mortgages/mortgage-prisoners


Source link

Related posts:

  1. Learning to live without LIBOR
  2. Second lender increases variable mortgage rates
  3. First Trust High Yield Opportunities 2027 Term Fund Declares its Monthly Common Share Distribution of $0.1194 Per Share for June | 2021-05-20 | Press Releases
  4. Federal funds rate set to rise: when and how mortgages, other loans will be affected

Recent Posts

  • Standard Chartered personal loan review: Is SCB CashOne personal loan the best?, Money News
  • How to Refinance a Second Mortgage
  • 5-year adjustable rate loans fall for the fourth straight week
  • When is it worth consolidating your bills?
  • CRB list freeze hurts personal loans, lenders say

Archives

  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • October 2020

Categories

  • Capital
  • Debt Consolidation Loans
  • Fixed Rate Loans
  • Unsecured Personal Loans
  • Variable Rate Loans
  • Terms and Conditions
  • Privacy Policy