Mortgage prisoners face losing up to £6,500 a year

Published by Adam Williams on 12 September 2017.
Last updated on 12 September 2017

Mortgage prisoners face losing up to £6,500 a year

Mortgage prisoners who are unable to remortgage to a cheaper deal are paying up to £6,500 a year more than is necessary.

Homeowners in London are hardest hit by being stuck on poor value standard variable rates (SVRs), according to research by online mortgage broker Trussle.

A customer in the capital with an average outstanding mortgage of £243,209 would pay £9,364 in interest on a typical ‘big six’ SVR compared to just £2,773 on today’s cheapest two-year fix – a £6,591 difference.

The average SVR at the biggest six lenders – Barclays, HSBC, Lloyds, Nationwide, RBS, and Santander – is 3.85%. This compares to the cheapest two-year fixed rate deal of 1.14%, available from HSBC.

Mortgage prisoners are stuck on their lender’s SVR and unable to remortgage as they can’t pass the affordability tests used by lenders today.

These tests were introduced by the Financial Conduct Authority in 2014 and have left many people paying more for their mortgage than they should be. In many cases people are unable to remortgage even though it would lower their monthly payments.

In the South East borrowers face an SVR penalty of £4,542, according to Trussle, while in the East of England mortgage prisoners are paying £3,946 than they need to.

Even in the North East, which has the smallest cash disparity between the SVR and the cheapest two-year fix, mortgage customers are still paying £2,130 more than is necessary.

‘This issue is more urgent than ever’

Moneywise reported about the difficulties faced by mortgage prisoners earlier this year, with some borrowers stuck on SVRs of up to 6%.

Ishaan Malhi, founder of Trussle, says that lenders must take action to support these struggling customers.

“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,” he says.

“This needs to change urgently. 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.”

See the table below for a full round-up of the SVR penalties mortgage prisoners face.   

 

UK region

 

 

Average outstanding mortgage

 

 

Annual interest on average 'big six' SVR (3.85%)

 

 

Annual interest on best 'big six' two-year fix (1.14%)

 

 

SVR penalty

 

London

£243,209

£9,364

£2,773

£6,591

South East

£167,608

£6,453

£1,911

£4,542

East

£145,620

£5,606

£1,660

£3,946

South West

£120,779

£4,650

£1,377

£3,273

Midlands

£100,281

£3,861

£1,143

£2,718

East Midlands

£95,787

£3,688

£1,092

£2,596

North West

£90,750

£3,494

£1,035

£2,459

Yorkshire and the Humber

£85,620

£3,296

£976

£2,320

Wales

£84,006

£3,234

£958

£2,277

North East

£78,590

£3,025

£896

£2,130

 Source: Trussle, 12 September 2017.

 

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