'I could be forced to sell my home even though Northern Rock collapsed 14 years ago'

·4 min read
for sale signs
for sale signs

A quarter of a million trapped homeowners could face repossession as ­interest rate rises rapidly make their mortgages unaffordable, campaigners have warned.

The Bank of England’s six consecutive interest rate rises have immediately and dramatically pushed up the cost of borrowing for homeowners on variable rate deals – including the majority of Britain’s 250,000 “mortgage prisoners”, who are trapped on high rates that move with the Bank Rate.

Gemma Acorn, not her real name, has been stuck on a standard variable rate (SVR) since the aftermath of the financial crisis. She bought her home in Merseyside 17 years ago using a mortgage from Northern Rock. After the bank went bust, the Treasury sold Ms Acorn’s mortgage to a lender who moved her onto the SVR.

Her current mortgage rate is 5.38pc, which is more than double the average effective rate of 2.11pc currently paid across all mortgages. It is also far higher than the average floating rate, which sits at 3.21pc.

Ms Acorn has been hit hard by rising rates. At the end of last year, her monthly payments were £700. Next month, the bill will be £830 – a jump of almost a fifth. Further impending rate rises will push her costs up even more.

Ms Acorn is a single mother with two children, aged 18 and 14. She works full time as a teacher but the rising costs mean she is now trying to take on weekend work marking exams and a Christmas temp job in a supermarket.

“My eldest daughter is going to university and she asked if we could go to Ikea to buy stuff for her student accommodation. I just can’t afford it. I feel like a complete failure,” she said.

Britain’s mortgage prisoners are homeowners who took out mortgages before the financial crisis, often with Northern Rock. After the bank went under, the Treasury sold its loans to a series of lenders, most of which are now inactive – meaning they are not taking on new customers and so do not have new loans to switch borrowers on to.

The vast majority of mortgage prisoners are paying SVRs far higher than typical market rates. They are unable to switch provider because mortgage lending rules were tightened after the financial crisis.

This means they face an absurd paradox: they do not pass “affordability” tests that satisfy lenders they could afford to make repayments much lower than they currently pay.

Others are constrained by circumstance – Ms Acorn bought her house with her ex-partner and cannot switch because his name is on the mortgage.

Rachel Neale, of UK Mortgage Prisoners Action Group, said: “After the next interest rate rise, some people will be on rates of 7pc. I know one person whose monthly bill has gone up by £1,000 since the rate rises began.”

Soaring costs mean that all 250,000 mortgage prisoners are at “huge risk” of repossession, Ms Neale said. “Absolutely that is most likely the way things are going to go.”

She called for the Government to bring in a moratorium on repossessions for mortgage prisoners, to prevent interest rate rises being automatically passed on to trapped homeowners and to investigate the rates at which lenders set SVRs.

Oliver Sands, speaking under a pseudonym, bought his house in Gloucestershire in 2006 with a 100pc mortgage with Northern Rock. After the bank collapsed, his mortgage was sold to a closed book non-active lender. At the end of last year, his monthly mortgage bill was £820. Now, it is £890. His current rate is 5.79pc, and will climb to 6.54pc. “I am absolutely terrified. We are on the line now. Once the energy price cap rise kicks in, and if our mortgage goes up again, we might have to sell the house.”

Mr Sands and his wife have four children, aged six to 18. “Our Government has done this to us,” he said.

A Treasury spokesman said: “We know that being unable to switch your mortgage can be very difficult. The Government continues work to determine if there are any practical and proportionate solutions for affected borrowers. Borrowers may find it easier to switch to an active lender thanks to rule changes by the Financial Conduct Authority and may wish to make use of free resources available via MoneyHelper to check their eligibility.”