The government will not put a cap on Standard Variable Rate (SVR) charged by inactive firms to help those who cannot move their mortgages as it would “undermine the principle of risk-based pricing” that underpins the mortgage market.
John Glen, economic secretary to the Treasury, said that a cap on SVR for inactive firms would be an “unprecedented market intervention”.
He added: “It would entail risks to the financial stability of firms which would be unable to vary their rates in line with their costs of funding and would be deeply unfair to borrowers in the wider mortgage market who pay similar rates to mortgage prisoners.”
In a written answer to shadow defence minister Chris Evans, Glen said that SVRs charged by inactive firms were “in line with those paid by borrowers in the active market”.
He said that the government would continue to examine what “further practical and proportionate solutions” there are to help mortgage prisoners that “do not pose unacceptable financial stability risks or are unfair to other borrowers in the mortgage market”.
Last year, the Financial Conduct Authority (FCA) published a review of mortgage prisoners which found that there were 47,000 mortgage prisoners who could benefit from switching to a mortgage deal but were considered too high risk despite keeping up to date with payments.
The report also found that only 200 borrowers on closed and inactive books switched onto new deals following the FCA’s change that allowed lenders to alter their affordability assessments.
Glen said that the review had made it clear that there reasons that mortgage prisoners were unable to switch were “complex and varied”, and included there being a high proportion of interest-only mortgage borrowers with no clear repayment plan or pre-financial crisis legacy issues such as self-certification of income.
He said: “A comprehensive understanding of the circumstances of mortgage prisoners is therefore crucial in progressing work and the FCA’s review provides the key insight necessary to facilitate this.
“Following this and previous interventions to help borrowers switch, the government is working with industry to determine if any further solutions that can be found to help mortgage prisoners.”
Earlier today, Glen resigned from his post as economic secretary, saying in a statement that whilst it had been a “great privilege” to serve in the role under three chancellors he could “no longer reconcile my commitment to the role and to the financial services sector with the complete lack of confidence that I have in your [Boris Johnson] continuing leadership of our country”.
A new appointment has not yet been made.