Lords vote in favour of mortgage prisoner SVR cap
This must apply to two and five-year mortgage terms and be no more than two percentage points above the Bank of England base rate.
The amendment requires the Financial Conduct Authority (FCA) to make this a rule so affected borrowers can access new fixed rates equal to or lower than the rate specified by the regulator.
To be eligible, mortgage prisoners must adhere to certain requirements such as being up to date with payments and having a remaining mortgage term of two years or more.
Speaking yesterday, Lord Sharkey, co-chair of the All Party Parliamentary Group for mortgage prisoners, said: “Solving the mortgage prisoner problem certainly requires reducing this usurious SVR, but it also requires giving the mortgage prisoners access to normal fixed-rate mortgage deals.
“I regret to say that there has been no real progress in either of these areas.
“This amendment takes a simpler and non-prescriptive approach. It places the obligation to fix the problem squarely on those who caused it — the Treasury.”
The bill will go through a report stage on Monday where MPs can consider any changes if needed. It will then go through a third reading in the House of Lords soon afterwards.
UK Mortgage Prisoners released a statement, saying: “The successful vote has brought immense relief to our members with renewed hope that their plight might finally be resolved.
“Implementing an SVR cap for closed book, inactive entities will bring an immediate end to the emotional, mental, and financial hardship and economic immobility that mortgage prisoners have faced for over a decade.”
Lord Stephenson withdrew the amendment in March after a previous debate on the same bill, but warned the government he would reintroduce it if there was not swift progress.
At the time he said: “We need convincing that there is work going on that will result in a workable solution of benefit to those affected by this within a reasonable timescale, otherwise we will come back… in a way that makes it clear that the government cannot continue to let this settle itself,” Lord Stephenson continued.
“It has to be taken forward in policy terms otherwise too much damage will be caused.”
Newcastle to drop SVR to 3.96 per cent
The lower SVR also means the stress test for new mortgages will be more affordable.
Effective from 1 December 2020, the mutual’s residential SVR in England, Scotland, Wales and Northern Ireland will be 3.96 per cent, a reduction of 2.03 per cent on the previous rate of 5.99 per cent.
Stuart Miller, customer director at Newcastle Building Society, said: “As a member-owned organisation we’re committed to supporting our customers own their own home by understanding their needs and taking a human, flexible approach to lending.”
In October, Newcastle extended its joint mortgage sole proprietor (JMSP) mortgage range with a five-year fixed product, which allows family members to help a relative own their home by jointly applying for a mortgage to boost the occupying borrower’s income.
Affordability is calculated using both incomes, but the mortgage will only be in the name of the applicant living in the property.
Back in the summer, Newcastle Intermediaries also relaunched its interest-only mortgage range with two 75 per cent loan to value (LTV) fixed rate products.
Over a million borrowers lapse onto SVR before remortgaging – MoneySupermarket
According to the price comparison site, this accounts for 12 per cent of the 11 million outstanding mortgages in the UK and an average extra spend of £133.46 a month.
Some borrowers were oblivious to the extra cost, as a survey of 2,640 remortgage enquirers found 15 per cent did not know they would be switched to an SVR or follow-on rate when their mortgage term ended.
Compared to those who had remortgaged before, this was nearly double that of the seven per cent who said they were aware their rate would change.
Emma Harvey, consumer affairs spokesperson at MoneySupermarket, said: “Standard variable rates on mortgages are notoriously expensive and with 15 per cent of those remortgaging being unaware of how they work, automatically lapsing onto them is a common and costly financial pitfall.
“Regardless of whether you’re on an SVR mortgage or another type, there could still be significant savings to be made when your initial mortgage deal comes to an end.”
MPs call for cap on SVRs and investigation into ‘outlier rates’
In an open letter, Seema Malhotra MP, co-chair of the APPG on mortgage prisoners and Kevin Hollinrake MP, co-chair of the APPG on fair business banking suggested introducing a two per cent cap above the base rate on all mortgage standard variable rates (SVR) to help mortgage prisoners.
The MPs said it was “imperative” that homeowners were helped not only by deferring payments but also with “real savings” as the relaxation of affordability rules had yet to benefit any of the 250,000 mortgage prisoners.
In the letter, the MPs asked the regulators to define what was meant by an “outlier rate,” in response to the FCA’s warning in May that it would take action on lenders who put mortgage prisoners on unfair rates.
MPs also questioned if it was against regulatory requirements for a lender to refuse to tell customers why variable rates had increased.
Malhotra said: “Too many mortgage prisoners have been exploited by being held on high standard variable rates or have seen their rate increased with no justification.
“The CMA and the FCA should intervene quickly to cap the interest rates being charged. The coronavirus has led to unprecedented strain on family finances and we need to help mortgage prisoners, including many key workers, get a better deal.”
Hollinrake added: “It is simply unfair that hundreds of thousands of UK individuals, couples and families are locked out of a mortgage market that the rest of us take for granted.
“Even if lenders were following the new guidance on the affordability test, the FCA admits that this will only help a small fraction of mortgage prisoners. A cap on the SVR is the simplest and quickest way of addressing this injustice.”
Relief for mortgage prisoners as lenders cut rates to match BoE
Rachel Neale, lead campaigner of the UK Mortgage Prisoners, spoke to both lenders to ask if they would be reducing rates after the Bank of England made an emergency cut to the base rate from 0.75 per cent to 0.25 per cent.
Helidor confirmed to Mortgage Solutions that all mortgages held with its parent company Topaz Finance will benefit from the reduction, including its Melanite, Rosolite and Siberite brands.
A spokesperson for Landmark Mortgages also confirmed the lender would make reductions to its standard variable rate.
Both reductions will come into effect from 1 April 2020.
Call for intervention
In an open letter, Neale urged lenders to make changes to rates regardless of whether they are legally obliged to or not.
Neale also called on the Financial Conduct Authority, the government, the Bank of England and supporting All Party Parliamentary Groups to step in and stop mortgage prisoners from being “financially exploited” for a second time.
She will also be writing to Mortgage Agency Service and Tulip to find out whether there are plans to reduce rates.
Co-op Bank drops SVR to match BoE cut
The lender will also apply the reduction to its tracker mortgages in line with terms and conditions.
Co-op Bank said it would also be reviewing the savings rates it offered to customers.
This morning, the Bank of England (BoE) cut the base rate from 0.75 per cent to 0.25 per cent to temporarily help businesses and households through any “economic shock” caused by the COVID-19 outbreak.
A Co-op Bank spokesperson said: “We continually review the rates, and products we have available to ensure we are offering the best rates we can to our customers in the low base rate environment. We will communicate any changes to our interest rates to our customers in due course.
“Although the Coronavirus outbreak situation is still unfolding, we have a number of plans in place to support our customers, and we would encourage any of our customers who have concerns to contact us.”
Overdue cladding inspections leading to ‘thousands’ of rejected mortgage applications
Chris Sykes, mortgage consultant at Private Finance, said the firm received notices from lenders including Barclays and Santander saying several mortgage applications were having to be cancelled because inspection requests made to management and maintenance companies of high rise properties were delayed.
He said he had seen some requests held for as long as nine months due to a lack of qualified inspectors, meaning mortgage applications were often exceeding the typical three-month timescale.
Sykes added that although testing may have been done on the buildings at some point, it was not always sufficient as many mainstream lenders require inspectors with certain qualifications and from particular trade bodies to carry out checks.
He also said clients were not receiving updates on the status of the inspections resulting in applications “grinding to a complete standstill”.
Sykes said: “We’re only given a certain amount of information and we can only chase so much. It seems those reports never come through, so we have to look at alternate routes.”
This has resulted in Sykes going to another lender to get another valuation, as he found some valuers were less concerned about particular cladding materials being used and did not consider them to be a risk to lend on.
He added:“Other times it’ll be somebody looking to remortgage, and they’ll just have to stick them with their current lender and find them the best rate there or they end up on the current lender’s standard variable rate.
“If someone is trying to sell a property and nobody can buy it because of cladding reports, then it’s throwing a spanner in the works.”
A spokesperson for Barclays said the matter related to “those qualified to issue the EWS1 certificate, the number of buildings that need to be inspected and the time needed to complete this review”.
It added: “For existing Barclays Mortgages customers that have not yet been able to obtain the EWS1 certificate, we will allow them to complete a swap rate to any of our highly competitive loyalty products – or complete a product transfer. For those seeking to remortgage in order to borrow additional funds, until EWS1 certificate is available we will not provide further borrowing.”
Barclays has been instrumental in developing a document with The Royal Institution of Chartered Surveyors (RICS), The Building Societies Association (BSA), and UK Finance to address those who are unable to remortgage due to cladding issues.
The initiative was introduced in December and will be a single assessment for each building which will be valid for five years.
Santander has been approached for comment by Mortgage Solutions.
Mortgage prisoners launch legal action against nationalised banks
The claim has been made by specialist litigation law firm Harcus Parker on behalf of the Mortgage Prisoners group against Northern Rock and Bradford & Bingley in their current forms; NRAM Limited, an asset holding company which held the bad debts of the former Northern Rock; and Mortgage Agency Services Numbers 1-7 Limited, financial service subsidiaries of The Co-operative Banking Group.
The core claim is that lenders were required to treat the mortgage prisoners fairly and to set their rates at a fair level.
While the government, Financial Conduct Authority and UK Finance are making attempts to address the concerns of mortgage prisoners and propose measures to help them, the law firm said this legal action would correct the overpayments made by the borrowers due to high interest rates.
For example, some borrowers with Northern Rock ‘Together Mortgages’ who have been paying rates of up to 15 per cent on unsecured loans of up to £30,000 will claim they have overpaid more than £30,000 in interest.
NRAM declined to comment when contacted by Mortgage Solutions and the Co-operative Bank has not responded.
The Mortgage Prisoners group is an organisation of people who have been on a standard variable rate (SVR) mortgage since the 2008 financial crash.
Many took out mortgages with Northern Rock, Bradford & Bingley or its brand Mortgage Express, before the lenders were taken into public ownership after the financial crash.
The companies then became inactive lenders, or their mortgage books were sold to the likes of the now inactive subsidiaries of TSB and the Co-operative Bank.
Once the borrowers’ fixed-term mortgages ended, some say they were not offered new deals due to new lending criteria put in place since the crash.
Potential multi-million pound claim
Harcus Parker said it was “impossible” to put a figure on the total claim, but said it was likely to amount to millions of pounds.
Damon Parker, managing partner of the law firm, said: “Our clients are regular, hard-working people who have done nothing wrong. Nevertheless, they have been unfairly treated and stigmatised by the failings of the banking system.
“Many of our clients have told us that, before they joined our group, they thought they were alone. Many have felt ashamed about being in financial hardship and of the impact it has had on their families. By bringing a claim as part of a group, they are benefiting from strength in numbers.”
Rachel Neale, who chairs the committee of Mortgage Prisoners that has instructed Harcus Parker, added: “This situation has affected my family severely, and made me want to campaign on the issue and organise the group.
“I have spent time with the All-Party Parliamentary Groups on Mortgage Prisoners and on Fair Business Banking, and have tried to meet decision-makers at the major lenders in order to try to change their attitude towards people in our position. I have a particular interest in the effect of financial problems on mental health.
“By bringing this litigation, I naturally want to help to ensure that we all achieve financial recompense, but I also want to highlight the issues so that others are not affected in the same in future,” she said.
Homes England scraps Help to Buy default SVR
Brokers will be able to base their affordability test on a lender’s standard variable rate (SVR) instead of using the Homes England assumed SVR of 4.8 per cent.
The government body said it would result in fewer loan applications being declined, after an offer has been issued.
Help to Buy director Will German said: “Brokers and advisers play a vital role in helping customers to use and understand Help to Buy. We’ve listened to their feedback and have updated the Help to Buy equity loan calculator to help them do more realistic affordability checks for their clients before they formally apply for their equity loan.
“We have unlocked the calculator so they can see, select and enter the most likely follow-on rate from their recommended lender.”
Helen Pierson, head of business development, Mortgage Bureau, said: “I’m relieved that the game of pinning the tail on the donkey has finally ended. Accurately forecasting affordability is vital to the Help to Buy qualification process and as such the advice given
“ Homes England’s decision to unlock their calculator will allow brokers to carry out what is acknowledged to be a very important role with renewed confidence.”
Help to Buy equity loan is a government loan that is interest free for five years. Families can borrow up to 20 per cent of the value of the new-build home they want to buy and contribute a deposit of five per cent. After five years, borrowers are charged 1.75 per cent on the original value of the loan.
Mortgage SVRs remain a ‘major factor’ but many borrowers are not interested – analysis
Customers do still revert to reversion and standard variable rates (SVRs) in certain circumstances, and so this remains a key part of the advice process.
Dominik Lipnicki, director of Your Mortgage Decisions, says: “The client’s expectation is that they will be moving at the end of the introductory period so whatever happens after that is pretty immaterial for most clients.
“But you could be made unemployed, your credit history could turn against you or we might have another crash in the housing market where loan to value becomes a huge issue and people could be in negative equity and unable to remortgage elsewhere.
“As an adviser, you should really be discussing what happens when a rate ends and if the client was unable to remortgage, but I fear that not many consumers are that interested,” he says.
Deals, deals, deals
In some cases, brokers are firmly focused on delivering the deals that clients want.
Chris Bailey, mortgage coach at Mojo Mortgages, says: “We calculate the true cost of deal for the customer on the deal period only. Throughout the process we appraise the whole market, constantly, for our customers.
“They know all their options and they are very much aware of the immediacy of the reversion rate,” he says.
However, other intermediaries have seen situations where clients slipped onto reversion rates owing to a change in circumstances.
Alastair McKee, managing director of One 77 Mortgages (pictured), explains: “The classic example is a client who took out an initial two-year fixed rate and 18 months later went self-employed. Most lenders won’t touch them until they have at least 12 to 24 months of signed accounts meaning their only option is to stay with the existing lender and their retention rates.
“Added to that, you’ll get some clients that leave things to the last minute and therefore don’t realistically have the time to remortgage to another lender and therefore a retention rate is the only viable option for them.
“All good brokers will always compare the retention rates for a lender to the open market rates so yes, they do play a major factor in the consideration of the client’s rate,” he adds.
Dangerous apathy to rates
While advisers’ focus is strongly driven by customers’ concerns about monthly repayments, brokers equally have a role in guiding borrowers’ thinking.
Lipnicki continues: “Borrower apathy to rates is immense and that’s hugely dangerous. Plenty of borrowers have never been in a situation where rates were higher, because they’ve only had a mortgage for the past 10 or 11 years and they’ve never seen it before.
“Plenty more do not remember the early nineties when mortgage rates were 15 per cent.
“People take it for granted and think that if the rate rises it will be tiny, because that’s what they’ve seen over the last few years. But of course we have plenty of potential dark clouds ahead of us with possibly Brexit, a possible global economy slowdown, the housing market and how expensive it will be to borrow money.
“Borrowers should think about the future by looking at the past and not just expecting rates to be at a low, because it’s far from certain that that’s where there will be,” he adds.
Rates go up as well as down
When the base rate plummeted following the financial crisis, lenders with lower reversionary rates were caught out.
David Hollingworth, London & Country Mortgages, associate director, communications, recalls: “When base rate did plummet, there were issues with some of the lenders that had low variable rates, because they’d never foreseen that base rate would come down so significantly. So some were unable to maintain the tracking margins they’d previously suggested they would, and used exceptional circumstances.
“Nationwide was two per cent over base maximum, but that was in the days the base rate was five per cent plus. Suddenly it was 0.5 per cent. They did honour it, but they had to remove it from new business products.
“So there are other issues that lenders have to be mindful of in terms of how they might enhance those follow-on rates.”
Spread of SVRs
Hollingworth also notes that there is a “substantial variance” in standard variable rates (SVRs) between lenders today.
“Some lenders’ SVRs are in excess of six per cent, whereas the likes of Nationwide, NatWest and Halifax are all coming in at 4.24 per cent. You’re looking at a range of around two per cent.
“You can’t just rule it out, but where you have two deals that are not identical, it’s a difficult balance whether to pay more on the first five years of the fixed rate, which is the functionality that you’re really interested in, because you might have a lower ongoing rate that hopefully you’ll never have to pay.”
“But there are instances we can point to, Northern Rock borrowers for example, who have unfortunately been left with little or no choice.
“Therefore the reversion rate should be inconsequential, but ultimately if two deals look pretty much identical and one has a lower reversion rate, all other things being equal, you’d suggest that is the better approach,” he concludes.