Mortgage prisoners in London trapped on their lender’s standard variable rate (SVR) are being hit with £9,364 in annual interest payments, more than a third higher than the average disposable income in the capital, new research shows.
According to online mortgage broker Trussle, it is also more than triple the £3,025 paid by a mortgage prisoner in the North East, where the annual interest payments are 18.7% of disposable income.
The disparity is the result of the major difference in outstanding loan value between mortgage borrowers from 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 are hit the hardest include the East and South East of the UK.
The £9,364 in annual interest paid by mortgage prisoners in London is £6,591 more than they would pay on the leading two-year fixed rate among the Big Six.
This means that they could free up 26% of their disposable income if they switched to this leading deal. For mortgage prisoners in the North East, this excess interest figure falls to £2,130 where switching could free up 13.2% of the average disposable income of a household.
People who have become trapped on their current deal and find themselves unable to remortgage are known as mortgage prisoners.
Since the introduction of the Mortgage Market Review in April 2014 anyone taking out a mortgage is now subject to stricter lending criteria to check that they can afford to repay.
Unfortunately, some borrowers who no longer meet the necessary requirements are unable to get a new mortgage despite their circumstances not changing and are automatically switched on to a lenders SVR.
However, borrowers stuck on a SVR will almost certainly be paying a far higher rate of interest than they would be on a more competitive deal.
Another reason why people find themselves stuck on an uncompetitive mortgage deal and unable to move is because of negative equity. This is when the value of your property is worth less than the mortgage used to secure it and usually happens when house prices fall.
For example, if you buy a home for £200,000 with a mortgage of £180,000 and your home is now worth £170,000, you would be in negative equity.
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.”
Table showing how mortgage prisoners are hit by interest payments
| UK Region | Average outstanding mortgage | Annual interest on average Big Six SVR (3.85%) | Annual interest on best Big Six 2yr fixed (1.14%) | SVR penalty (excess annual interest) | ONS Household disposable income 2015 | Annual interest as % of average disposable income |
| London | £243,209 | £9,364 | £2,773 | £6,591 | £25,293 | 37% |
| Southeast | £167,608 | £6,453 | £1,911 | £4,542 | £21,808 | 29.6% |
| East | £145,620 | £5,606 | £1,660 | £3,946 | £19,796 | 28.3% |
| Southwest | £120,779 | £4,650 | £1,377 | £3,273 | £19,128 | 24.3% |
| Midlands | £100,281 | £3,861 | £1,143 | £2,718 | £16,559 | 23.3% |
| East Midlands | £95,787 | £3,688 | £1,092 | £2,596 | £16,935 | 21.8% |
| Northwest | £90,750 | £3,494 | £1,035 | £2,459 | £16,915 | 20.7% |
| Yorkshire and The Humber | £85,620 | £3,296 | £976 | £2,320 | £16,267 | 20.3% |
| Wales | £84,006 | £3,234 | £958 | £2,277 | £16,341 | 19.8% |
| Northeast | £78,590 | £3,025 | £896 | £2,130 | £16,197 | 18.7% |
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This information does not read true .
I am a #mortgageprisoner and my SVR is 5.4%
The real prisoners were sold by the government to cerberus for huge financial gain -The FCA failed to protect the consumer by ensuring guidelines were in place .
11 years later we are still stuck
This story is NOT about mortgage prisoners – it’s about people who can’t be arsed to switch rate …..
It sounds like you are a mortgage prisoner whose mortgage was sold to an inactive lender (does not lend, it just bought your loan to service it). Unfortunately these firms are not regulated by the FCA and do not have to keep to their rules. The government, FCA and industry bodies are working on how to change this but it looks likely the law will need to be changed – and that could take a long time. This article explains a bit more https://bit.ly/2Fm6zLr