Mortgage prisoners are being left “suicidal” and at risk of destitution as standard variable rates approach double digits, campaigners have warned.
Around 200,000 households remain trapped in mortgage deals set at some of the highest rates, after taking out home loans with banks such as Northern Rock that collapsed during the financial crisis.
The average standard variable rate across all lenders reached 7.52pc this week, as surprisingly high inflation numbers pushed up expectations for interest rates.
But many mortgage prisoners whose loans were sold by the Government to so-called vulture funds, which buy up discounted debt, are facing even higher costs.
The firms that bought their debts are so-called inactive lenders, which offer no other mortgage products despite being licensed to do so, meaning the borrowers are unable to switch to cheaper rates.
Rachel Neale, of campaigning group UK Mortgage Prisoners, said: “These people aren’t on the 4.5pc or 5pc that the average person is now seeing.
“Their interest rate has gone from 4.5pc, which everyone is moaning about, all the way up to 9pc, 9.5pc and 10pc and above.”
A borrower owing £150,000 whose mortgage was sold to Landmark Mortgages will have seen their standard variable rate rise from 4.39pc to 8.64pc, piling £3,900 on their annual payments.
Once the Bank of England’s 0.5 percentage point increase on Thursday has been reflected in a week or two the rate could go to highs of 9.14pc.
Several mortgage prisoners, who became trapped after affordability criteria tightened sharply in the wake of the financial crisis, are stuck on interest-only mortgages that brokers had recommended to them.
Someone with an interest-only loan of £120,000 managed by Landmark Mortgages would have seen their payments shoot up by £5,100 a year before the latest rate rise.
The situation is pushing homeowners into mental health crises and towards homelessness, according to Ms Neale.
She said: “We have had people openly put on the [Facebook] group that they want to commit suicide if this rate rise happens because they have nowhere to go. It’s devastating – families are in impoverished situations, they’re facing homelessness.”
The Bank of England raised interest rates for the 13th consecutive time on Thursday by 0.5 percentage points to 5pc, defying expectations of a smaller rise.
The All Party Parliamentary Group on Mortgage Prisoners had urged Chancellor Jeremy Hunt to include representatives from inactive lenders managing these loans in talks with bank bosses. The Chancellor, who met bank chiefs on Friday to discuss support for borrowers during the mortgage crisis, did not heed the calls.
Co-chair Seema Malhotra MP said: “The Chancellor’s mortgage summit did not deliver any help for mortgage prisoners facing soaring standard variable rates after being sold on by the Government without any protection. These customers are trapped and need to be treated fairly and offered fixed rates.”
Campaigners said that forbearance guidance had so far failed to compel these companies to offer any options to those left trapped, including people undergoing cancer treatment who regular lenders can support in different ways.
Landmark Mortgages has previously said that homeowners are free to switch to other lenders “without any penalty” and that it encouraged any customers needing support to contact it for additional help.
A Treasury spokesman said: “We have updated mortgage lending rules – removing the barrier that prevented some mortgage prisoners from being able to switch – and introduced significant financial and legal protections for those most in difficulty.
The spokesman added that the Treasury was “open” to practical and proportionate solutions to help mortgage prisoners.
Meanwhile, the Financial Conduct Authority said it recognised the “difficult circumstances” faced by those trapped on standard variable rates and was committed to “supporting industry and Government in their work on this issue”.