Government rejects interest rate cap for mortgage prisoners - but the fight won't stop

Mortgage prisoners are unable to switch to a cheaper mortgage. They were unfairly left behind after the 2008 financial crash - some are on home loans with inactive lenders or unregulated firms that don't offer new mortgages, while others are unable to switch due to tough new mortgage affordability criteria brought in as a result of the crisis. One borrower we spoke to last year, for example, was paying 4.59% interest and had paid £10,000s more than he needed to. 

For years, MoneySavingExpert.com (MSE) and our founder Martin Lewis - as well as others, such as the UK Mortgage Prisoners (UKMP) group - have pounded at the doors of politicians and regulators to tell them people who were meeting current repayments, but wanted to shift to a lower rate, were nonsensically being rejected and told 'you can't afford a cheaper deal'.

Martin: Capping interest rates is a 'good stopgap' 

The amendment to the Financial Services Bill, which had been suggested by the All-Party Parliamentary Group on Mortgage Prisoners (APPG), would have brought in a cap on the standard variable rate (SVR) of interest for mortgage prisoners in 'closed books' - ie, those borrowing from a firm which no longer lends to new customers. The proposed cap was no more than 2% above the Bank of England base rate (currently 0.1%). 

Martin believed that in lieu of anything else, the amendment would have been "a good stopgap" and the House of Lords voted in favour of the cap earlier this month after it was tabled by Liberal Democrat peer Lord Sharkey.

At the time, Martin said: "In lieu of anything else, I believe for those on closed-book mortgages it is a good stopgap while other detailed solutions are worked up, and I'm very happy the All-Party Parliamentary Group on Mortgage Prisoners is pushing it."

Tory MPs largely vote against the amendment

But to become part of the Financial Services Bill the amendment had to be voted on by the House of Commons, which took place on Monday (26 April). 

• 355 MPs voted against the amendment. Of those who voted against, all 355 were Tory MPs (only two Conservatives voted in favour of the amendment). A similar amendment was debated on but also not taken forward by the Commons earlier this year. 

• 271 MPs voted in favour of the amendment. You can see which MPs voted for and against the amendment on the Parliament.uk website. 

During the debate, Seema Malhotra MP, co-chair of the APPG on Mortgage Prisoners, voiced support for the amendment and referenced Martin. She said: "Mortgage prisoners have been neglected for more than 10 years. Families have been destroyed and homes have been lost. While the minister commissions yet another review, every month mortgage prisoners struggle to make their monthly payment due to high interest rates.

"The delays will mean that more homes will be lost. As the consumer champion Martin Lewis has said, an SVR cap on closed-book mortgages “would provide immediate emergency relief to those most at risk of financial ruin. No one should underestimate the threat to wellbeing and even lives if this doesn’t happen, and happen soon.”" 

Meanwhile, Conservative MP Kevin Hollinrake, vice-chair of the APPG on Mortgage Prisoners, admitted "we got the balance entirely wrong" in terms of balancing public finances against consumer detriment. But while Mr Hollinrake said the Government was “duty-bound” to find a solution to the issue, he voted against the amendment given the Government has committed to find an alternative solution. 

LSE research was used in arguments both for and against the cap

Other MPs referenced MSE and the London School of Economics's (LSE) November 2020 report on mortgage prisoners as reasons for both supporting and rejecting the amendment. John Glen MP, minister of state and economic secretary to the Treasury said: “I am concerned that any cap on standard variable rates, including one only applicable to inactive lenders, would have unintended consequences for financial stability. The LSE agreed and did not recommend a cap, noting that it could cause market harm." 

Yet in response, Labour MP Pat McFadden said: “The minister [John Glen] cited the LSE report. Financial journalist Martin Lewis, who backed that report, has spent the last two days encouraging this House to support the Lords' amendment. The LSE report cited a number of other things that the Government has not done, such as Government equity loans, removing together loans—a particularly difficult product—partial loan write-offs and mortgage rescue schemes. The Government has not acted on any of those."

'It's devastating to feel so trapped and hopeless'

Many mortgage prisoners were upset to see the cap rejected by MPs. Here are a few of the tweets we've seen:

Government to review mortgage prisoner data

Both the House of Commons and the House of Lords have to agree on amendments in order for bills to become law (except in certain limited circumstances where the Commons can bypass the consent of the Lords) – and it's unclear at this stage whether there's any other way the amendment could go ahead.

However, during the House of Commons debate Mr Glen announced that: 

• The Government will work with the financial regulator to review existing data on mortgage prisoners to see if there are any other "practical and proportionate" solutions it can come up with. Both MSE and LSE have called on the Government to urgently use data on all UK borrowers – which only it and the financial regulators have access to – to accurately calculate the costs of the proposed policy measures. 

• The Financial Conduct Authority (FCA) will also review the effect of its new, less stringent affordability rules, which came into force for some mortgage prisoners last year. It will report back on this by the end of November.

It comes after Chancellor Rishi Sunak agreed during an interview with Martin earlier this year that there was a need to "make sure we have workable solutions" to help all mortgage prisoners. 

Martin: 'The fight won't stop here'

Despite being "saddened" by the amendment failing to go through, Martin has promised that the "fight won't stop here". He tweeted: