I'm a mortgage prisoner stuck on 8% interest - I've had to cancel ...

A homeowner, who was forced to give up work for six months because of her ill health, is now trapped in a mortgage deal that she can barely afford.

Megan Noble, from Walkerdene, Newcastle upon Tyne, originally took out a £119,00 mortgage for her three-bedroom house in 2007 that came with a price tag of £129,950.

It seemed reasonable, and her mortgage adviser at the time encouraged her to opt for a standard variable rate (SVR) mortgage suggesting her monthly repayments would be lower than on a fixed-rate deal, something she now believes was incorrect advice.

Now, the scheme project manager for Network Rail is stuck paying £831 each month in repayments – a figure which she said has increased significantly over the past year.

However, because she is in arrears, there’s nothing she can do about it.

The 50-year-old said: “A few years ago, I had to resign from my job when I went into hospital for six months. It was such a tough period for me. Now I’m stuck on an 8.1 per cent deal and I’m not allowed to change my product. Haven’t I suffered enough?”

She is among the 195,000 “mortgage prisoners” in the UK who took out unfavourable high-interest or interest-only mortgages with lenders before the 2008 global financial crisis and prior to lending restrictions being tightened.

Mortgage prisoners are generally subject to increasing SVRs – set by a mortgage provider – which tend to be higher than most mortgage options, including fixed-rate mortgages. Most homeowners will be moved on to a high-interest SVR if their fixed-rate or tracker deal ends unless they switch to a new deal.

But mortgage prisoners are unable to get a new mortgage deal because they do not meet current lender criteria, due to factors such as their age, income, or credit score.

Megan added: “I’m trapped. It’s been really difficult meeting the huge increase I have seen in my repayments over the last 11 months.

“If I knew that my repayments would be this high, I wouldn’t have chosen an SVR. All I want is to remortgage and switch to a fixed rate, for example.

“I have had to reduce treats like meals out or changing the way I holiday with my family so I can afford to pay my mortgage. I’ve cancelled piano lessons, and I know that’s not really important, but it was something that I really enjoyed. It’s time just for me. I work so hard and have been through a lot, so I think I deserve that.

“The only reason I am in arrears is because I wasn’t very well. I’m working again so but I’m still being punished.”

As of 1 November, the typical SVR stands at 7.95 per cent, according to Moneyfacts.

By comparison, the average two-year fixed rate is currently 5.3 per cent, while the five year is 5.28 per cent.

Megan does have hope, however. Interest rates are starting to decrease with the Bank of England cutting the base rate to 4.75 per cent this month.

As a result, Megan’s mortgage rate will fall. She hopes rates will continue to reduce so she can “clear out her arrears as quickly as possible”.

According to research by household money-saving tool Nous.co, a household with a typical £200,000 mortgage on an SVR will pay £353 a month, or £4,237 a year, more than if they were on the average two-year fixed rate.

The figures indicate that 773,000 households in the UK are on a SVR mortgage and are paying over the odds in repayments each month.

Greg Marsh, Nous chief executive and co-founder, said: “Households who slip on to their lender’s SVR because they don’t renew in time are being hit by a loyalty penalty that amounts to thousands of pounds every year.

“It’s not fair that people are overpaying because the burden of staying on top of household bills and admin is so painful.”

Not sure if you’re a mortgage prisoner?

1. Did you purchase your home, or remortgage it before the introduction of the stricter affordability rules in 2014?

2. Have you been told in the past you can’t switch to a more competitive, cheaper deal?

If the answer to both of these questions is yes, you’re likely to be a mortgage prisoner.

What’s being done to help mortgage prisoners?

Mortgage prisoners were dealt a blow in April 2021 when the Government rejected an amendment which would have capped interest rates for those with “closed-book lenders” – those which no longer offer mortgages to new customers.

The Government has promised to explore other options which may help mortgage prisoners, although this provides cold comfort for those currently struggling with painfully high mortgage payments.

The Financial Conduct Authority (FCA) introduced new mortgage affordability rules in 2020 which aim to help some mortgage prisoners switch to new deals. When you remortgage, lenders typically need to see proof of income and outgoings and will also apply a “stress test”, so they can be certain you’ll be able to afford your mortgage if rates rise in future.

The regulator has said that lenders can choose to use a “modified” version of these affordability rules to help those trapped in their current deals so that they are able to remortgage, as long as they are not moving home, are up to date with their repayments and don’t want to borrow any additional funds.

It has also urged unregulated and inactive lenders to get in touch with customers whose introductory mortgage rates have finished to let them know they may be able to remortgage.

What support is there for mortgage prisoners?

The UK Mortgage Prisoners group is a support group for those trapped in their current deals. It has launched a legal action to try and reclaim the difference between the high rates mortgage prisoners have been charged and a fair rate.

You could also seek free debt help from charities. Some organisations offer one-to-one session with someone paid to help you, not to make money out of you. Be careful not to confuse this with “free help” – many commercial companies say they’re free as you’re not charged directly, but you’ll still pay somehow.

Three organisations you could contact for help:

Citizens Advice StepChange Debt Charity National Debtline