It is no secret how expensive it is to live in London to get on the UK property market in the capital takes more than just a little ‘dosh’, but the rising houses prices are trapping people in mortgages they may not be able to afford.
People that purchased their property through a Standard Variable Rate (SVR) mortgage pre 2014 are facing an additional payments that are just downright unfair.
This problem has seen the phrase ‘Mortgage prisoner’ coined and refers to people trapped on a Standard Variable Rate (SVR) mortgage because they do not meet the stricter criteria or the borrower affordability rules introduced by the Bank of England in 2014.
In monetary terms these borrowers are seeing mortgage payments reach £9,364 in annual interest payments, this equates to as much as 37 percent of the average disposable income in the capital, according to analysis from mortgage broker Trussle.
These borrowers are stuck between a rock and a hard place as they will in most cases be paying a much higher interest payment than their peers on a more competitive deal, the average SVR among the Six biggest lenders is currently 3.85 pct, says Trussle.
In London, the average borrower has more than £243,200 left to pay on their mortgage.
The £9,364 in annual interest paid by mortgage prisoners in London is £6,591 more than they would pay on the leading two-year fixed rate among the ‘Big Six’.
Ishaan Malhi, CEO and founder of Trussle, says:
“Many factors are contributing to the troubling number of mortgage prisoners across the UK, and we’re now seeing that geographic location also plays a large factor in how hard you’ll be hit should you end up stuck on your lender’s SVR. For borrowers based in London, the southeast, and east of the UK, the annual interest payments can be absolutely crippling.
“While some lenders do offer help to mortgage prisoners, too many are in effect holding these borrowers to ransom, while they collectively lose around £13 million per day in excess interest. This needs to change urgently. Our recent Mortgage Switch Guarantee proposals call for a new set of industry standards to be implemented to help borrowers on SVRs switch mortgage. One of the key proposals recommends that all lenders have some form of duty-of-care to their customers, possibly in the shape of offering a range of relief options to mortgage prisoners.
“Whether this takes the shape of a payment holiday when it’s clear a borrower can’t afford their payments, or an obligation for lenders to refinance mortgage prisoners who meet certain criteria, it’s clear that addressing this issue is more urgent than ever,” Malhi adds.
If you’re looking for property investment detail, please visit DevDosh Ltd today.