Credit, Collections & Insolvency News
Cooper said: “Overcharging could happen again during the Covid-19 crisis, especially as the government has now stepped in to temporarily close down the housing market. This means new business for lenders will be almost non-existent.”
“It is vital that regulators closely scrutinise the interest-rate decisions taken by lenders and step in to stop any financial profiteering, which is subject to fairness tests of EU consumer law.”
Cooper said that, even now, there are hundreds of thousands of homeowners currently paying more than they should for their mortgage. He added: “What’s even more worrying is that many of these are mortgage prisoners who have been prevented by lenders from switching provider. They will be stuck with punitively high interest payments with no means of moving their mortgage to another lender.”
In 2018, the FCA estimated that 150,000 people are currently mortgage prisoners.
Cooper said ME Group has assessed mortgages for tens of thousands of customers, many of whom are classed as financially vulnerable, and who are owed billions by lenders. “We have made the Financial Ombudsman Service and the Financial Services Compensation Scheme aware of the scandal, but the wheels move very slowly and it could be many months before these cases are attended to.”
“What is vital is that borrowers are protected this time around so we don’t have another generation ripped off by greedy lenders.”
After the 2008 financial crash, the number of people taking out a mortgage dropped substantially, creating a big gap in revenue for lenders. To maintain profits, lenders had to find new revenue streams from other parts of their business or drive more revenue from their existing mortgage book. The way that the latter was achieved, in a large part, was to increase the gap or ‘spread’ between lender borrowing cost, and the rates charged to borrowers. This was impossible for those mortgages where borrowers were on fixed or tracker mortgages, so lenders targeted SVR mortgages.
The Bank of England ‘s Term Lending Scheme and Funding for Lending Scheme made this even more profitable by pumping cheap money at lenders to reduce borrowing costs on the street and in turn stimulate the economy.
Although SVR rates were higher before the crash, the spread rose after 2008 at a time when funding for mortgage lenders had reduced. We believe this was deliberate so as to plug the revenue shortfall arising from the drop in mortgage inceptions. In 2012, this policy was found to be illegal under European Consumer Protection law. The lenders would have expected this, especially after the Office for Fair Trading issued comprehensive guidance to the industry.
After the 2012 ruling almost all lenders updated their terms and conditions. However, they could not apply the revised terms to historical mortgages; their only way of doing this was to switch the client’s product and therefore bind them into the terms of the new mortgage. Many have been doing this, albeit without giving any indication as to the loss suffered as a result of the previous non-compliant terms. However, for those people who are ‘mortgage prisoners’ as a result of not fitting more stringent lending requirements, the lenders have not been able to achieve this.