Home owners trapped as ‘mortgage prisoners’ are paying £227 more a month on average than they were 15 months ago.
Mortgage prisoners face soaring interest rates, with some paying up to 11 per cent, and are trapped because they cannot switch lenders.
They are caught on standard variable rates and on average, analysis by i shows, their payments have increased by £2,719.20 since December 2021.
Standard variable mortgages are the most expensive type for home loans. They are also the most exposed to increases when interest rates rise, and we’ve seen 11 consecutive increases since the end of 2021, including the increase to the base rate on Thursday.
“The situation for mortgage prisoners is getting worse every single month due to the relentless rise in variable rates,” MP Seema Malhotra, co-chair of the All Party Parliamentary Group on Mortgage Prisoners, told i.
“Many mortgage prisoners are in a perilous situation.”
Mortgage prisoners cannot switch because even if they kept up with payments without ever going into arrears over many years, they are considered too great a risk to take on by the lenders they apply to. Many of them have been stuck since before the financial crash of 2008, when lending rules were changed.
The average rate for standard variable mortgages has gone up from 4.4 per cent in December 2021 to 7.1 per cent today.
i’s analysis of the payment increases is based on a comparison of mortgages for the average loan of £138,000 to be repaid over a 25-year term.
Some lenders charge much more than the 7.1 average. Among them are Virgin and Aldermore, which charge more than 8 per cent, and campaign groups say some mortgage prisoners pay over 11 per cent.
A report by the London School of Economics, funded by Martin Lewis, states that there are 200,000 people who are mortgage prisoners.
Many of them took out home loans before the financial crash of 2008 when regulations were less strict – one of the reasons for the crash.
The London School Economics recently published a report saying the people affected “suffered financially, mentally, and physically for more than a decade”.
Rachel Neale, a spokesperson for the campaign group Mortgage Prisoners UK, was a mortgage prisoner until last year.
She had a loan with Northern Rock, which was sold to a company called Landmark.
She was paying £579 a month on a 4.79 interest-only rate for a mortgage debt of £132,000.
When she was finally able to move to another lender her rate went down to 2.14.per cent.
“It took a while to move as I had to clear my arrears,” she added.
“I got into arrears with Landmark as the monthly costs were so high. There are people in the group hitting 11.3 per cent without the rate rise. We know people are choosing to put properties up for sale without knowing where they are going to go.”
The All Party Parliamentary Group, which was was set up in in 2019, has called for standard variable rates to be capped for mortgage prisoners.