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Cap on Standard Variable Rates to help mortgage prisoners rejected

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Written by: Owain Thomas
19/11/2020
HM Treasury has rejected the possibility of capping Standard Variable Rates (SVRs) for mortgage prisoners.

The move was a key part of the report produced last week by the London School of Economics (LSE) on freeing the mortgage prisoners, but has been swiftly rejected by economic secretary to the Treasury, John Glen.

Glen was responding to a written question from Labour MP for Feltham and Heston Seema Malhotra asking about the effectiveness of permitting an SVR over 4% on former Northern Rock mortgages now managed by unregulated lenders.

In response he said it was down to lenders to decide the SVRs and the rates former Northern Rock (NRAM) borrowers were paying was similar to mortgage market standard rates.

“The setting of SVRs is generally a matter for lenders, in which the government plays no role,” he said

“In government sales of NRAM mortgages, however, purchasers have been restricted in the changes they can make to the SVR for at least 12 months after the transfer of ownership.

“The purchasers in most recent UKAR asset sales have been required to set the SVR by reference to the SVRs charged by a basket of 15 active lenders, for the lifetime of customers’ loans.

Recent data from Moneyfacts found the average standard variable rate (SVR) across the entire mortgage market to be 4.44%. The rates former NRAM customers pay are therefore consistent with market standard rates.”

However, the LSE report earlier this month highlighted that in some loan books, 90% or mortgage prisoners had rates of more than 5%.

“Although in general the SVRs on prisoner loans are not out of line with rates in the wider market, there are concentrations of loans with higher interest rates,” it said.

Meanwhile, until the Newcastle Building Society reduced its rate this week, the highest SVR in the mortgage market was 5.99%.

Extending FCA perimeter

Malhotra also raised the question of extending Financial Conduct Authority (FCA) regulation across the mortgage market

Glen said: “In all sales of UKAR assets, the servicer of customers’ loans has remained FCA-regulated. In all but the first sale, the legal title holder of customers’ loans has also remained FCA-regulated.

“The government is open to considering an extension to the regulatory perimeter where the benefits to consumers and markets can be demonstrated.

“It is important to note, though, that a change in perimeter will not help customers to switch to a cheaper deal, or materially lower the rates of their mortgage.

“Thousands of borrowers will now find it easier to switch to an active lender or continue interest only payments thanks to recent rule changes by the FCA, and we continue to work with the FCA to look for practical new solutions to help borrowers,” he added.

Extending regulation was also a key element of eight the LSE report recommendations and it noted that only a tiny minority of the 250,000 trapped borrowers would be able to utilise the new measures and that the FCA had reached the extent of its current powers.

Glen’s claim to be considering widening regulation appears in direct contrast to statements made by then-FCA chief executive Andrew Bailey who on several occasions either called for Treasury to widen the FCA’s perimeter or said Treasury had no desire to do so.

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