The Financial Ombudsman Service received a record number of complaints about mortgages last year.
A total of 13,659 complaints were made about mortgages and secured loans, the highest received in a single year and up 6 per cent on the 12,845 received in 2012. The FOS upheld 30 per cent of mortgage and secured loan complaints
Typical problems were to do with keeping up with mortgage payments and arrears handling and charges. Around a third of those people had already fallen into arrears by the time they sought help – a problem the FOS referred to as “debt denial”.
The report suggests a lack of understanding among some borrowers about the level of debt they are
The problem is exacerbated by borrowers who end up on stuck on their lender’s standard variable rate, the so-called “mortgage prisoners” unable to remortgage to a lower rate.
How bad is the SVR problem?
Data from the Council of Mortgage Lenders shows that the proportion of outstanding mortgage balances held by customers on SVRs has jumped from 49 per cent in the second quarter of 2007 up to 67 per cent in Q2 2014.
Meanwhile separate figures provided by Moneyfacts.co.uk show a steady increase in average SVRs over the past five years, rising from 4.61 per cent in May 2009 to 4.88 per cent as of 16 May 2014.
Perception Finance managing director David Sheppard says: “There does need to be some greater guidance from the regulator, telling lenders they need to be open to this kind of business – you cannot just lock someone into a rate and stop them from moving their life forward.”
Your Mortgage Decisions director Dominik Lipnicki says: “It is an absolute disaster. Lenders need to be responsible and allow borrowers to move to other products.
“These clients were able to borrow money in the past and it is in everyone’s interest to keep repossession cases to a minimum. Lenders must take action because not enough is being done – there are far too many mortgage prisoners.”
Enness Private Clients managing director Hugh Wade-Jones says: “Where house prices are rising and equity levels are by and large increasing, homeowners are in an improved position. But those who cannot remortgage or move their mortgage either because of loan-to-value issues or negative equity face a real problem.”
Brokers say there is little logic behind SVRs, which can be three or four times higher than the headline rate. Sheppard says: “You will struggle to find any clarity behind how the SVRs are calculated.
“Some people are obviously locked into these products and that means essentially the banks can charge what they want.”
Lipnicki says: “SVRs used to roughly track the base rate but that has more or less stopped and lenders just keep increasing their rates. There seems very little logic applied and the answer appears to be that they are doing this because they can.”
But Wade-Jones says lenders are acting within their rights to set their own SVRs.
He says: “Bank rates, base rate itself and to a certain extent mortgage rates have been kept artificially low by people’s unrealistic expectations about how much they should pay to borrow money. The cost of funding for banks has gone up, they have shareholders to answer to and if we are frank, borrowers do know what they are getting into when they sign up for a mortgage.
“If we take our political-correctness hats off, people cannot be too surprised about SVRs rising.”
What are the options for mortgage prisoners?
Sheppard argues lenders must take it upon themselves to help their own customers. “No regulator is allowed to dictate commercial terms and lenders have no legal obligation to offer rates to people they do not want to lend to. But if a borrower has fallen into negative equity but has maintained their payments, lenders should offer a rate.”
Wade-Jones says not all lenders offer a product range for borrowers stuck on an SVR.
He says: “There should be products that offer an escape for mortgage prisoners. It is not really acceptable to have people stuck in a product that can potentially cripple them.”
Lipnicki says: “There are two things, related to each other that could be done to help tackle the problems faced by mortgage prisoners. Firstly, lenders could apply a bit more logic and track their SVRs to the base rate again. We could also try to emulate the system in America where borrowers can obtain a 25-year fixed rate mortgage but with no early repayment charges. We have to see some sort of creativity from lenders and a bit more willingness to help these customers who are facing significant problems.”
Intermediary Mortgage Lenders Association chairman Charles Haresnape says: “There isn’t an industry-wide discussion on this at the moment, as lenders make their own policies on this.
“Some are more flexible than others, but it is certainly an issue that we need to discuss further. As an industry we need to look at how we can help those borrowers who find themselves stuck and want to move onto a different product or rate. We will definitely have it on the agenda and will look to push the debate on what is a very important issue in the mortgage industry.”