In a cold room at Croydon County Court, Gregston Clarke is fighting to save his family home from repossession. He says he has never missed a mortgage payment but his lender, Southern Pacific Mortgages Limited (SPML), is trying to evict him and repossess his house anyway.
How did Mr Clarke – a dry cleaners’ delivery driver in his 60s – end up here?
Mr Clarke and his partner, Pearl Pancrace, a teaching assistant, are mortgage prisoners – that is, someone up to date on their mortgage payments who cannot switch to a new deal because they have problematic borrowing characteristics, such as a poor credit score or low income, which would make it difficult for them to get a loan today.
The Financial Conduct Authority (FCA) estimates that there are around 250,000 mortgage holders who, like Mr Clark, have loans with lenders that are no longer active. These include the now defunct bank Northern Rock or, in Mr Clarke’s case, SPML.
Of those 250,000, the FCA says 195,000 borrowers are mortgage prisoners. And, of those, they estimate that 66,000 may be able to switch to a new deal, while 47,000 are stuck because they cannot switch even though it benefits them to do so.
However, Rachel Neale, the lead campaigner at Mortgage Prisoners UK – a group of around 5,000 people affected by this issue -, says the true number is higher. “The FCA have counted the number of mortgages but there is often more than one person on a mortgage,” she told i. “One mortgage can affect two or even four people.”
Mortgage prisoners are often homeowners who have been trapped paying high-interest rates since the global financial crisis of 2008.
Mr Clarke did everything right. In 2007, he did something most people in Britain dream of doing: he bought a home for his family. He still lives in that white semi-detached mid-century terraced property in south London today with Pearl and their two sons, 24 and 27.
Now, he is living every family’s worst nightmare and it all comes down to the fact that the mortgage Mr Clarke was given back in 2007 was unaffordable; it set him up to fail. His lender, SPML, no longer offers mortgages. It is an “inactive entity” but was once a UK arm of the disgraced US bank Lehman Brothers.
Lehman was one of the institutions which collapsed in 2008 because of the risky loans they had handed out, triggering the global financial crisis.
Mr Clarke’s problem is twofold: firstly, he took out an interest-only mortgage and is now being asked to repay the capital amount in full as opposed to being offered a new deal by SPML. Secondly, there is also a dispute over the length of Mr Clarke’s mortgage term, meaning he is being asked to repay a huge amount much sooner than expected.
Mr Clarke’s initial interest rate was high at 7.19 per cent. After two years, that then went up to a Standard Variable Rate (SVR) which was somewhere in the region of 9.20 per cent.
That means that though he bought his home for £335,000 with a £50,000 deposit, he had to repay £285,000 on an interest-only basis without making a dent in repaying the capital.
Under today’s lending restrictions, which were tightened after the global financial crisis in 2008, the high-interest, interest-only short-term mortgage offered to Mr Clarke in 2007 by SPML would not be allowed based on more stringent affordability tests.
“I didn’t even realise SPML no longer exists. It’s like a jungle,” Mr. Clarke told i as he tried to understand his situation in order to fight for his home. “You don’t know which way to turn.”
Mr Clarke, who earns around £500 a week as a driver for a dry-cleaning company, is confused and completely distraught.
“I just don’t understand,” he said in the waiting room at Croydon court while running his hands over his face. His sons, who attended the hearing with him, were also perplexed and deeply concerned. Pearl, their mother, said little.
Mr Clarke thought he took out a 23-year mortgage. However, SPML are insisting, via their third-party administrative arm – a company called Acenden, which adds another name and layer of confusion – that his mortgage term was only 13 years long and argues that he owes them £322,546.33. That is more than he borrowed back in 2007.
Mr Clarke, who is currently paying Acenden £902 a month via direct debit, is confused as to how this figure has been arrived at and says he has received no documentation explaining it.
For those on variable rates, like Mr Clarke, the current economic climate is incredibly challenging. The current interest rate on the amount SPML say he owes is 5.99 per cent. Interest rates have been rising since December 2021 due to the global inflation crisis and the Bank of England’s decision to repeatedly increase their rate. However, in the UK, average mortgage rates surged to 6.65 per cent in October 2022 after former prime minister Liz Truss’s “mini-Budget” caused panic in financial markets. In October 2021, the average rate had been 2.25 per cent.
Mr Clarke says he struggles to get through to anyone at Acenden to get clarity on his situation.
“Whenever I call them, they put me on hold and pass me around,” Mr Clarke says. “I’m lost. I’m trying to dig myself out of quicksand because I don’t know what is going on.”
“They expect me to pay off the balance in one go,” Mr Clarke adds.
The complex financial labyrinth Mr Clarke finds himself trapped inside would be confusing for anyone. Lehman collapsed in 2008, taking SPML with them, and their loan book of mortgages was sold. It was bought by another lender – Kensington Mortgages. Kensington is an active lender in its own right but it also services SPML’s remaining mortgages.
Kensington Mortgages’ have 62,000 customers according to their own communication material. They are ultimately owned by the international investment fund Blackstone.
Mr Clarke’s mortgage has been bought, sold, and traded on international markets, making money for the people who own it for years. But now, as interest rates rise, he is on the hook for mortgage terms that would be considered onerous today.
He is not the only one.
Jacqueline Davey, 60, from Norfolk also has a mortgage with Southern Pacific which she took out in 2007 when she bought her home for £185,000 with a £70,000 deposit.
Ms Davey lives alone and works as a PA. She earns £26,000 a year which means her monthly take home pay is £1,740. Recent interest rate hikes have squeezed her finances and, like Mr Clarke, she is on a variable rate.
“My monthly mortgage payments have gone up from £201.65 in January 2021 to £546.33 in January 2023,” she told i. “By the time all of my direct debits have gone out for the mortgage, heating, electricity and running my car, there’s not an awful lot left.”
The increase in her mortgage payments is causing Ms Davey “concern and anxiety”.
“I am literally living from paycheck to paycheck,” she said. “I know that if my mortgage goes up again as it is forecast to do, I will probably have to sell my home.”
Ms Davey had a big deposit. Why did she take out a mortgage with SPML who were known for lending to people on low incomes with poor credit scores?
She told i that a mortgage broker suggested SPML to her and told her they were “the best option”.
“I didn’t question it,” she explained. “But now I spend my time reading about mortgage prisoners in Facebook groups.”
There is a parallel with Mr Clarke’s situation here. SPML never dealt with their borrowers directly, their mortgages were all arranged via third-party brokers.
Mr Clarke and SPML reached a stalemate in court, causing the judge to adjourn SPML’s repossession case, because Mr Clarke insisted that his broker sold him a 23-year mortgage. However, SPML maintained that they gave him a 13-year mortgage which ended in 2020.
Documents, seen by i at Croydon County Court, given to Mr Clarke by his broker – a company which appears to no longer exist – contain details of a 23-year mortgage with sections related to that term highlighted in yellow by hand.
“The broker did everything for me,” Mr Clarke remembers. “He set it all up and just told me what to do. He said to pay the interest first.”
These layers of complexity and opacity have added to Mr Clarke’s confusion. He may have been duped by his broker.
SPML was well-known for its lax lending practices. In 2011, an investigation conducted by This Is Money found that three out of five of their mortgages were “liar loans” where borrowers were allowed to self-certify and never asked to prove their income.
Expert mortgage broker, Ray Boulger, has more than thirty years of experience in the industry.
“SPML lent to people who had adverse credit and limited options,” he tells i. “It does sound like Mr Clarke’s mortgage would have been particularly difficult for him to repay.”
At best, it appears Mr Clarke may have been mislead by his broker. At worst, the documents he was given are fraudulent.
“Sadly, mortgage fraud did happen, though no reputable broker would engage in it. When Mr Clarke took his mortgage out, more of the process was done on paper, it wasn’t electronic, so these things are harder to monitor than they are today,” Mr Boulger adds.
Indeed, in 2011 cases of mortgage fraud involving SPML were reported.
Boulger says: “I find it very odd for any broker to advise this family that taking out a 13-year mortgage was a good idea. As this was an interest-only mortgage, monthly payments would have been the same regardless of the term and so choosing the maximum term available would have given Mr Clarke more options to sell or refinance his home”.
“Under more recent FCA guidelines, Kensington should have offered Mr Clarke a new mortgage deal on the outstanding amount,” Mr Boulger adds. “Though they don’t have the power to enforce that.”
That is because SPML was not a bank, nor is Kensington. This means they are not subject to the same rules and enforcement as banks.
Regardless of this and the question of whether Mr Clarke was duped or not, the fact that Kensington is an active lender who could offer both him and Ms Davey new deals remains.
Ms Davey would love to remortgage with a new lender. However, her age and income could be a barrier to this. She currently has four years and seven months left on her mortgage which presents another problem: in order to switch to a new lender, a mortgage prisoner must have a minimum of five years left on their term.
When i contacted SPML via Kensington Mortgages for a comment on Ms Davey’s situation, a spokesperson declined to comment.
Kensington Mortgages is currently for sale and high-street lender Barclays has embarked on the process of purchasing the company.
As an active lender, Barclays could also offer Southern Pacific customers a new deal. Barclays declined to comment on their acquisition of Kensington Mortgages.
The FCA published guidelines for how lenders should treat mortgage prisoners in 2021. They state that where someone has an interest-only mortgage, the annual statement they receive must include a reminder that the borrower is responsible for arranging to repay the capital at the end of the term. Mr Clarke says he has not received correspondence to this effect even though SPML argues his mortgage term has now ended.
Added to that, the FCA notes that much of the mortgage lending industry follows a voluntary agreement where active lenders will offer a new deal to existing customers who are up to date with payments when their original lender is no longer operating. This should mean that if a customer’s circumstances have changed, meaning they cannot switch lenders, they can still get a new deal.
According to the FCA’s guidelines, he should have been offered a new deal by Kensington as they are an active lender. Mr Clarke says he has received no communication to that effect.
In a situation such as Mr Clarke’s, a lender is supposed to follow strict pre-action protocol before pursuing a mortgage holder in court to repossess their home. However, Mr Clarke says he has received no correspondence negotiating with him or offering him a chance to repay the outstanding amount.
Mr Clarke’s plight shows that the legacy of the last financial crisis is still impacting people as the country enters into another period of economic turbulence which, once again, will be defined by unaffordable mortgages. According to the likes of the Joseph Rowntree Foundation (JRF), rising rates could pull an additional 400,000 homeowners into poverty.
The plight of mortgage prisoners is now receiving attention in Parliament due to rising rate. Labour MP Seema Malhotra is the Co-Chair of the All-Party Parliamentary Group (APPG) on Mortgage Prisoners. She told i: “Too many mortgage prisoners have been exploited by being held on high standard variable rates or have seen their mortgage sold on to a company which does not treat them fairly.”
“The Government should introduce an amendment to the Financial Services and Markets Bill to cap standard variable rates for mortgage prisoners,” Ms Malhotra added.
Ms Malhotra also told i: “When Barclays completes the purchase of Kensington Mortgages it must use the flexibilities under the FCA rules to offer mortgage prisoners like Mr Clarke new deals.”
As the inflation crisis deepens, the Bank of England recently raised the bank rate again by 0.5 per cent to 3.5 per cent. Ahead of their decision, on December 7, Chancellor, Jeremy Hunt, met with major lenders as well as the FCA to discuss how anyone struggling to pay their mortgage can be supported.
At the meeting, it was agreed that lenders should help customers who are up to date with payments to switch to a new competitive, mortgage deal without another affordability test.
However, Ms Malhotra warned i: “The new FCA guidelines won’t deliver help to the 200,000 mortgage prisoners as they don’t cap high standard variable rates or require the vulture funds to offer fixed rates.”
“Mortgage prisoners have suffered for 14 years without any help at all,” Ms Neale added. “They were victims of a lack of protection and regulation before 2008 and they’re still paying for that now.”
Ms Neale also fears for the wellbeing of mortgage holders stuck on high-interest-rate deals. “We had a suicide in our group a couple of weeks ago,” she told i. “It was because of the stress of rate rises.”
“Inactive lenders are becoming lawless,” she concluded. “We are calling for a moratorium on repossessions for mortgage prisoners.”
A Treasury spokesperson told i that ultimately lenders must make their own decisions.
“The Government has already taken steps with the FCA to update mortgage lending rules, removing the regulatory barrier that prevented some mortgage prisoners, who otherwise may have been able to switch, from accessing new products,” they said.
During their recent court hearing, Mr Clarke and his partner told the judge it was news to them that their mortgage term was 13 years. When the judge asked the solicitor’s agent representing their bank, he could not provide paperwork signed by the couple to that effect. The case was adjourned because the dispute could not be settled.
Acenden has since sent Mr Clarke a piece of paper that shows that he has a 13-year mortgage term. However, it is not signed by him, and he says he has never seen it before.
“Not all mortgage offers need to be signed, but some documents would have to be signed before completion and Mr Clarke’s solicitor had a duty of care to make sure Mr Clarke knew what he was signing,” Mr Boulger explains.
Acenden did not respond to i’s attempts at contact about Mr Clarke’s case.
The layers of financial obscurity surrounding Mr Clarke’s situation are part of the problem. “I have never even heard of Kensington,” he tells i. “They have never tried to contact me. I did not even know that Southern Pacific had collapsed.”
A spokesperson for Kensington Mortgages told i that they follow the FCA guidelines and send their customers correspondence which includes debt advice as well as information about a repayment strategy.
“Our main objective is to engage with our customers and support them whilst they obtain or review their repayment options to repay the balance. Where there is engagement and affordability, we will look to set an arrangement to pay at least the monthly interest-only element, so the balance does not increase and the situation does not further deteriorate for the customer,” they said. “This allows additional time for the customer to establish a suitable repayment solution. All correspondence and engagement throughout this process signposts our customers to get independent financial advice, as well as debt advice or other appropriate support.”
“Litigation and repossession action for all mortgage accounts, including those that are term expired, is always the last resort,” they added.
However, when i contacted Kensington Mortgages and asked them to comment on Mr Clarke’s case specifically and confirm whether the correct procedures had been followed, instead of asking the couple for their permission to share information with a journalist they sent a form to Mr Clarke and Ms. Pancrace in error via Acenden which asked them to give a third party the “authority to make decisions” about their mortgage. This error also occurred when a comment was requested about Ms Davey’s situation.
After that, Kensington Mortgages stopped replying to i‘s requests for comment and clarification.
When it comes to whether Mr Clarke was missold a mortgage in the first place, his only recourse is complaining to the Financial Services Compensation Scheme (FSCS) because his original broker is no longer trading.
Neither the judge on the day of Mr Clarke’s first hearing, nor the duty solicitor who advised him for free, understood the complexities of the case. And when i asked the solicitor’s agent representing SPML if he knew that the company pursuing Mr Clarke for his home was defunct, he said “no” and declined to answer further questions.
When these layers of bureaucracy are unraveled, one fact remains: Mr Clarke’s home hangs in the balance, as does whether his family will become homeless and what impact all of this will have on their financial future as he awaits a new court date. There is currently a backlog in England’s courts so that could take months.
“I am confused and stressed out,” he told i over the phone while he waited to hear from the court. “I don’t understand how this could happen. Now I understand why people do stupid things [like hurting themselves].”
Do you have a mortgage with Southern Pacific Mortgages or Kensington Mortgages? Have you ever encountered Acenden? Please email firstname.lastname@example.org or get in touch on Twitter @Victoria_Spratt or Instagram @vicky.spratt