Mortgage prisoners in line for fresh punishment

Trapped homeowners hit by higher interest rates are still told that they ‘can’t afford’ to pay less, writes Adam Williams

Thousands of unlucky homeowners face more financial pain as interest rate rises start to bite. While most variable-rate mortgage customers will see their repayments increase following last week’s Bank Rate rise, they can move to a cheaper fixed-rate deal with a rival provider.

But 150,000 “mortgage prisoners” are trapped on loans with sky-high rates and cannot switch, even if it would cut their monthly payments.

These customers have already paid thousands of pounds more for their mortgages than a typical borrower, and the financial pressure on them will intensify as rates continue to rise. Mortgage prisoners are unable to move because they would not pass the strict affordability checks applied by banks, despite many having a perfect financial history and significant equity in their homes.

David Waterhouse, 48, is a customer of UCB Home Loans, a subsidiary of Nationwide, which is closed to new borrowers. Mr Waterhouse is a landlord in Leeds with irregular income, meaning he cannot take out a loan elsewhere, even though it would cut his £1,400 monthly repayments.

Mr Waterhouse has a spotless financial record and wants access to the rates Nationwide offers customers of its main brand. He argues his 16-year payment history should be enough for Nationwide to offer him a cheaper rate. He currently pays 5.29pc on a portion of his mortgage and 5.49pc on the remainder.

“I’ve spent 16 years showing I can afford this mortgage,” he said. “If I can afford to pay £1,400 a month, then why can’t I afford £700 or £800?”

Nationwide said UCB operated separately to its main business but that customers could access some lower fixed rates. However, Mr Waterhouse described its offer of a 4.49pc rate as “arbitrary” and accused Nationwide of hiding behind a subsidiary. The 4.49pc offer is significantly higher than the 2.53pc market average rate for a two-year fix, according to data provider Moneyfacts.

Customers on UCB’s standard variable rate will see their interest rate rise from 5.49pc to 5.74pc on Sept 1.

Mr Waterhouse, like many other prisoners, lodged a complaint with the financial ombudsman, but this was rejected as companies like UCB are acting completely within the rules.

John Phillips, of mortgage broker Just Mortgages, blamed the rules themselves. “Lenders have little or no motivation to do anything about it,” he said.

Many banks and building societies have now pledged to support mortgage prisoners by giving them access to cheaper rates. But their proposals would not necessarily give customers access to the most competitive rates and would also only help 10,000 of the 150,000 affected.

Many of the remaining homeowners are former Bradford & Bingley and Northern Rock customers, whose loans were transferred to third parties that do not offer new mortgages.

Christine Kinsella of Stoke-on-Trent is a former Northern Rock customer whose loan was sold by the Government to Landmark Mortgages. as she has a terminal lung condition with a life expectancy of fewer than five years. Given her health, she was stunned when she asked Landmark for a lower rate and was offered an extended 10-year term.

She estimates she has spent thousands more on her mortgage than necessary and would have paid off her loan already if she had been able to move to a cheaper deal. “It’s just so unfair,” she said. “I don’t want to be working until the day I die.”

Landmark refused to comment on her case but confirmed that customers would see their interest rates rise from 4.79pc to 5.04pc on Sept 1.

Stephen Clark, 39, is another former Northern Rock customer. His mortgage is now held by NRAM, a Government-backed entity. The self-employed electrician said he was paying a “terrible” rate of 4.79pc on his home in Dunfermline.

NRAM will not offer borrowers a cheaper deal but, like Landmark, is able to increase rates when it chooses. It is reviewing whether to pass on the Bank Rate rise and has encouraged its customers to switch elsewhere if they are able to.

‘If I can afford to pay £1,400 a month, then why can’t I afford £700?’