Secretive investors and “vulture funds” have been accused of profiting from other people’s misery by buying up residential mortgages on the cheap in the hope of making a quick profit.

Hundreds of thousands of people have had their debts bundled together and sold on to these shadowy investors, who have been forcing hard-up borrowers to remortgage elsewhere or lose their homes. Once they own the mortgages, they have the power to set interest rates, employ debt collectors and repossess and sell properties if borrowers default.

Bob Young, managing director of Capital Home Loans, which manages its own mortgage book, says: “I am approached by one or two firms a month offering to buy our loans. These funds are after £50 million to £200 million of loans for 50 per cent to 60 per cent less than the original cost of the debt.

“The objective is to get the borrower out of the property as soon as possible so it can be sold on for a profit.”

Industry insiders say that some investors are looking to make a profit in as little as two years, meaning that they are under intense pressure to milk borrowers for all they can.

Henrik Molin, a partner at Ironshield, a hedge fund that has recently bought a pool of mortgages, says: “We have paid a very low price for these mortgages. We push to refinance their mortgages with a new lender or for the borrower to sell and leave the property.”

The affected mortgages were originally owned by British lenders that have run into trouble or niche players, including the specialist lending arms of large US banks such as Merrill Lynch and Lehman Brothers. The collapse of the housing market means that these lenders are now keen to wash their hands of British loans and will sell to anyone who will buy them.

While the sellers in the mortgage trading frenzy are easy to identify, the purchasers are more difficult to determine, though a number of hedge funds are known to be involved.

David Cresswell, of the Financial Ombudsman Service (FOS), says: “Homeowners should be told that their loans have been sold on or if there are changes to the terms and conditions, but it may still be unclear who the purchaser is.”

To make matters even more confusing, under Financial Services Authority (FSA) rules, investors cannot manage the mortgages themselves, though they ultimately control how they are handled. Instead, the funds employ loan servicers, also known as “third-party administrators”, to do the work for them and serve as the principal contact for customers. The main job of loan servicers is to collect payments and chase borrowers in arrears.

Home Loan Management, owned by Skipton Building Society, is the biggest loan servicer, managing 500,000 loans. It collects mortgage payments for the sub-prime lenders Kensington and GMAC, along with Bradford & Bingley, the state-owned lender. Other names to look out for include Vertex, Crown and Capstone Mortgage Services.

Although loan servicers are supposed to stick to the same rules as mainstream lenders, the FSA is concerned that some are hitting borrowers in arrears with an avalanche of charges and being too quick to seek repossession. It has referred four businesses for enforcement action and may investigate another seven for failing to follow guidelines on treating customers fairly. It is expected to issue fines of up to £1 million in the next 12 months.

Jon Pain, managing director of retail markets at the FSA, says: “This is an area of the marketplace where we have particular problems. Firms cannot take advantage of a customer because they are in arrears, and the charges that are levied on customers must be a reflection of the administration costs.”

But should you worry if your mortgage has been sold on to one of these companies? There is cause for concern, says Dominic Lindley, of Which?, the consumer organisation. He says: “Big banks that have a long-term relationship with a customer are going to be more interested in treating someone fairly than an investor who wants to maximise profits.”

Fortunately, it is possible to lodge a complaint if you unhappy with the way that you are being treated or the fees that you are being charged.

Government rules say that a lender or loan servicer has to prove that it has exhausted all other avenues before seeking repossession.

If you have a problem or run into arrears, you should first contact the company. Most loan servicers will look more kindly on your situation when you run into arrears if you can prove that this is the result of a short-term drop in income and that you will be able to begin repaying your debt in full quite soon.

The company then has eight weeks to respond to the complaint. If you are unhappy with the response that you receive, the next step is to take your complaint to the FOS. For further details, go to the website at financial-ombudsman.org.uk.

Case study

George Sharp, from Stanley, Co Durham, has been paying hefty monthly charges to the loan servicer Capstone Mortgages Services after he missed several payments.

The carpentery and joinery teacher, left, is £1,080 in arrears on a mortgage he took out with Southern Pacific Mortgages, then owned by Lehman Brothers. It has since been sold on, but Mr Sharp has no idea to whom.

Mr Sharp is being charged £60 a month as an arrears fee on top of his £720 regular repayments. He is also being charged £27.90 a month for buildings insurance after Capstone insisted that it had not received notification that he had taken out his own cover. He insists that he sent the details three times, adding: “The extra charges mean that it will take me much longer to clear my debts.”

Capstone says: “We do all that we can to assist our borrowers when they find themselves in financial difficulty.”

Vicious circle for mortgage borrowers in arrears

The biggest high street mortgage lenders have been criticised for punishing borrowers in arrears with hefty monthly charges, plunging them deeper into debt.

Members of the Treasury Select Committee, which is conducting an inquiry into the mortgage market, were told this week that Halifax, owned by Lloyds Banking Group, levies a £35 a month fee for homeowners who are behind with their mortgage payments.

Woolwich, the mortgage brand of Barclays, charges £40 a month, while Northern Rock, which is owned by the taxpayer, expects customers to pay £25 in the first month, rising to £55 after three months of missed payments.

A number of lenders, including GMAC, automatically try to take a mortgage payment two weeks after it is first due, adding another £25 charge if the money is still unavailable.

Dominic Lindley, of Which?, the consumer organisation, says: “These charges make it so much harder to get out of financial difficulty and there is no evidence to suggest that they are a fair reflection of the costs involved.”

Lenders came in for particular criticism for charging homeowners for debt advice. Halifax, Britain’s biggest lender, demands a £100 fee for a visit by a debt counsellor, while West Bromwich and Kent Reliance building societies charge £150. Sally Keeble, the Labour MP for Northampton North and a member of the select committee, asked: “Is £100 to £150 reasonable for a debt counsellor visit?”

The Financial Services Authority (FSA), the City watchdog, is already investigating mortgage arrears charges after complaints that the size of the fees do not reflect the extra administration costs involved, which lenders are allowed to pass on to borrowers.

Jon Pain, retail managing director for the FSA, revealed last month that one lender, which has not been named, was found to be using the money earned from arrears charges to pay for advertising. He says: “It is vital that companies treat customers in arrears fairly and it is unacceptable that some are applying fees that push customers towards repossession without considering alternatives.”

Charges do not stop when a borrower faces repossession. The state-owned mortgage arm of Bradford & Bingley hits homeowners who are about to be repossessed with a fee of £300 for instructing solicitors and an extra £35 for issuing proceedings against them. Nationwide Building Society charges £260, while Lloyds TSB, another part of Lloyds Banking Group, insists that homeowners pay a £206 fee.