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‘Mortgage prisoners’ in London hit hard

Cherry Reynard
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Cherry Reynard

London’s ‘mortgage prisoners’, trapped on their lender’s Standard Variable Rate (SVR), are paying an average of £9,364 in additional annual interest payments.

This is more than a third (37%) of the average disposable income in the capital, according to analysis from online mortgage broker Trussle, and more than triple the £3,025 paid by a mortgage prisoner in the North East, where the annual interest payments equate to 18.7% of disposable income.

The disparity is the result of huge difference in outstanding loan values in each region. In London, the average borrower has more than £243,200 left to pay on their mortgage, compared to £78,600 in the North East. Other regions where mortgage prisoners will be hit the hardest include the East and South East of the UK.

‘Mortgage prisoners’ are those borrowers trapped on their lender’s SVR and unable to switch to a better deal because they fail the stricter borrower affordability rules introduced by the Bank of England in 2014. As such, they are paying paying a far higher rate of interest than they would be on a competitive fixed or variable rate deal – the average SVR among the Big Six lenders is currently 3.85%.

Tussle calculates the £9,364 extra by looking at what borrowers could be paying on the leading two-year fixed rate among the ‘Big Six’ (HSBC’s 1.14%). This is equivalent to 26% of their disposable income.

Ishaan Malhi, CEO and founder of Trussle, said: “Many factors are contributing to the troubling number of mortgage prisoners across the UK, and we’re now seeing that geographic location also plays a large factor in how hard you’ll be hit should you end up stuck on your lender’s SVR. For borrowers based in London, the southeast, and east of the UK, the annual interest payments can be absolutely crippling.

“While some lenders do offer help to mortgage prisoners, too many are in effect holding these borrowers to ransom, while they collectively lose around £13 million per day in excess interest. This needs to change urgently. Our recent Mortgage Switch Guarantee proposals call for a new set of industry standards to be implemented to help borrowers on SVRs switch mortgage. One of the key proposals recommends that all lenders have some form of duty-of-care to their customers, possibly in the shape of offering a range of relief options to mortgage prisoners.

“Whether this takes the shape of a payment holiday when it’s clear a borrower can’t afford their payments, or an obligation for lenders to refinance mortgage prisoners who meet certain criteria, it’s clear that addressing this issue is more urgent than ever.”