Mortgage Prisoners

Philip Hollobone Excerpts

Wednesday 28th June 2023 Westminster Hall

[Martin Docherty-Hughes]

I thank the hon. Member for that intervention. I will go on to the history of some of this. I hope that the APPG agrees not only about a cap on the standard variable rate, but about the other two issues I highlighted. I would be happy to work with the all-party group in future.

Let me turn to my constituent Chris Dorman. I have known Chris and his family over many years, especially his mum Rose, who was and remains to this day a legend in the history of my home town, Clydebank—a working-class history that is so seldom related or reflected in a place such as this. She was one of the founding members of the first credit union in Scotland, the Dalmuir Credit Union, helping countless families just like the one I grew up in. I was member 507; that takes me back some time.

That is relevant—and I hope the Minister will understand this—because we need to begin any discussion about mortgage prisoners with the firm rebuttal of any idea that these people are bad borrowers who are to blame for their own predicament. Chris comes from a family who know how mortgages work and how people should go about choosing a lender and a product that will not cause problems for them or their family in future scenarios. When he took out the mortgage with Northern Rock in 2003 to buy a flat, I do not doubt that he would have kicked the tyres of the agreement and known where to look for potential pitfalls. Of course, he would not have found any.

Northern Rock was a triple A lender, one of the largest lenders in the country and a fast-growing national presence that still had its roots in the north-east of England. I know about this because I got my first mortgage with Northern Rock at around the same time—and believe me, this is the point where I start to think, “There but for the grace of God go I.” I do not think it will be the last time in this debate when that is my overriding emotion.

In 2007, as Northern Rock crumbled in the bank run that heralded the next year’s financial crash, Chris was forced on to an interest-only plan. Although for many people switching to an interest-only payment is a stopgap because of short-term financial circumstances, for people in Chris’s position it has been the beginning of their problems. That entirely understandable decision has rendered them unable to change their lender, as many of us do these days, and move to a more attractive rate.

Instead, through the actions of the now nationalised Northern Rock, Chris was flung to the mercy of a standard variable rate that began to diverge significantly from the Bank of England’s average SVR. The decision was quite deliberate. During a period when we were all dealing with the most significant global recession for decades, people like Chris were having to come to terms with that extra dollop of uncertainty. They probably did not know it at the time, but what would initially have felt like a short-term inconvenience was turning into an actual prison, even if there were already some organisations sounding the alarm.

Like so many, and some of our own constituents, Chris was forced to persist with an entirely inconvenient and increasingly costly arrangement and unable to switch to a better deal, making a mockery of the idea of home ownership and the free market being liberating for individuals and families. Through the last decade he has been paying the 6% or 7% interest rates that many of us now complain of today.

This is where we begin to see a bit of the societal impact of the policy. The village of Duntocher, where Chris lives, is a fairly normal part of my constituency socioeconomically. It has poverty and wealth; it is not the wealthiest part of West Dunbartonshire. It is a community—it was an ancient Roman site and then a mill town that predates Clydebank itself—that has a lot of small locally owned businesses, which would have benefited from the thousands of pounds each year that Chris and his family were overpaying on their mortgage.

Let us not forget that for well over a decade the UK Government were the ultimate holders of that mortgage, through UK Asset Resolution. I can imagine myself thinking that the Government would not do anything so deliberately to harm the hundreds of thousands of UK residents in this position and that a sensible resolution would eventually be found. As we will see, there were numerous attempts to address the issue through the various Conservative Governments we have lived through so far. It was not a purgatory before things got better. They were about to get worse.

In 2019, UKAR sold a tranche of books, including Chris’s, to a company called Heliodor. He had never heard of it, and with good reason, because it is an entity that neither I nor any of us here could borrow from. It is a vehicle that exists solely to serve the existing Northern Rock mortgages. Although it operates in a regulated market, Heliodor’s ultimate owner, Topaz Finance Ltd, is not a regulated entity and relies on third-party administrators who are regulated by the Financial Conduct Authority in order to comply with its regulations.

However, and significantly in Chris’s case, as Kath Scanlon et al’s report from the London School of Economics points out, the setting of SVRs is not a regulated activity, meaning that a business opportunity for morally ambivalent vulture funds such as Topaz has been created, and people—our constituents—are offered up as hosts for a parasite.

Despite never having fallen behind on his payments, Chris found himself subject to a host of fees and other spurious admin charges. Incredibly, the principal he owed rose by almost £10,000 in a few short years, with no additional lending being offered. That pushed Chris into negative equity, as the amount he owed Heliodor became greater than the value of the flat he shares with his wife.

[Mr Philip Hollobone (Kettering) (Con)]

I congratulate the hon. Gentleman on his speech and on securing the debate. My constituent Valerie has written to me. She is a mortgage prisoner, one of 200,000 across the country. She says exactly what the hon. Gentleman has said about Chris:

“I have been a mortgage prisoner since the initial crash of the market and despite never having missed any payments or been in arrears I am unable to remortgage as I cannot meet the new current affordability rates due to the LTV ratio of my property. I am now paying an almost 8% variable rate.”

Is it not the key point here that mortgage prisoners such as Valerie have done nothing wrong? They have met all their payments and have never been in arrears, but they are trapped. They urgently need relief from the Government.

[Martin Docherty-Hughes]

I thank the hon. Gentleman for his intervention. He is correct, and the Government need to listen and take immediate action not only for Chris, but for the hon. Gentleman’s constituent and the more than 200,000 others who I am sure are in the same predicament.

The cruellest part of this sorry tale of modern Britain is this: as Chris approaches the end of the 25-year term of his mortgage, having been forced into the interest-only plan just a few short years after he began to make repayments, he risks losing his family home of a quarter of a century unless he can come up with the full amount he owes to Heliodor. The aspect I find most galling is the inversion of the principle of home ownership, whereby people have ended up paying what is essentially rent to a vulture fund, which almost certainly knows it will be able to acquire the property at the end of the term.

Topaz Finance will have been licking its lips, I am sure, at a deal that is basically guaranteed to be paid twice: first, through the monthly payments that Chris and his wife have been making, and secondly when Topaz Finance sells their home from under them in 2029, at a healthy profit over what it picked the property up for in 2019.

As the House can imagine, the toll this has taken on Chris has been severe, as I am sure it has been for many of our constituents. Chris is unable to work, owing to the mental and psychological strain the situation has provoked, so it is down to his wife, a nurse, to work all the hours she can so they can stay in their home, although they understand the bitter irony that that is only a temporary respite until the hammer inevitably falls in 2029.

It is up to us as Members of Parliament to make sense of this personal calamity—not only for me and for Chris, but for the constituents of other Members—and to think of the consequences of Chris’s story, with hundreds of thousands of people across these islands potentially affected. It is unthinkable.

In such a situation, how do we even begin to ensure not only that our constituents are protected from the avarice of these vulture funds, but that, somehow, there is some sort of recognition of the years they have lived under ever-increasing pressure? How do we make up for the opportunities missed—holidays not booked, families unable to grow, dreams unrealised? As Chris has said to me, this is essentially a form of legalised loan sharking, although unlike illegal loan sharks, vulture funds such as Topaz Finance do not break your legs, Mr Robertson; they break your spirit.

A small gleam of light has been the dawning realisation among mortgage prisoners that they have been exploited by so many of the actors that we are going to hear about today, and I want to thank UK Mortgage Prisoners for the work it has done, including the group’s most recent report, “Setting the Record Straight”, which helped me to understand that, tragically, the experience of my constituent Chris is very much not unique.

In the second part of my speech, I want to explore the opportunities to avoid this disaster that were missed along the way, and to ensure that the possibility of tens of thousands or hundreds of thousands of mortgage prisoners being put out on the street and coming within the ambit of local councils and social services is very much acknowledged. It is important to cast our minds back to 2008, when Northern Rock was a prime lender and in the top five nationally. The LSE report I cited puts it very well:

“The problem of mortgage prisoners was largely created by the actions of successive UK governments in trying to address the excessively risky lending of the early 2000s. The prisoners…are a legacy of the rapid mortgage market expansion that took place prior to the Global Financial Crisis”.

By now we all know about the plethora of seemingly innovative mechanisms to enable wider home ownership, including high loan-to-value ratios. The banks that offered those novel products, such as Northern Rock or Bradford & Bingley, were household names—well-known brands that did not make people think twice about borrowing with them—and even the then Chancellor of the Exchequer, Alistair Darling, stated clearly in 2007:

“I can tell the House that Bank of England lending is secured against assets held by Northern Rock, which include high-quality mortgages with a significant protection margin built in and high-quality securities with the highest quality of credit rating.”—[Official Report, 19 November 2007; Vol. 467, c. 960.]

When those books were brought under the auspices of UKAR, borrowers could have been forgiven for thinking that all would be well: they were paying their mortgages, and the UK Government would ensure that they were not taken advantage of. However, even then there were warnings, inside and outside Government, about the potential risks of that approach. In 2009, the consumer group Which? told the Treasury Committee:

“Northern Rock’s mortgage business strategy seems to consist of telling many of its existing customers to go elsewhere and coming down hard on those who have got nowhere to go by having a relatively high standard variable rate and a ‘rapid’ move towards repossession.”

Even the Treasury, in the same year, was quite clear about the risks of allowing those unregulated firms to take over the Northern Rock book. It stated in a report that firms not engaging in regulated activity are not bound by the requirements of the FCA regulations, including, importantly, the requirement to treat customers fairly. It said:

“Non-regulated owners of regulated mortgage contracts may seek to maximise margins by raising interest rates and charges, potentially to levels that are unaffordable to borrowers.”

The same document stated, clear as day:

“Such activity clearly has the potential to cause severe harm to borrowers”.

Yet, incredibly, the UK Government carried on regardless.

Despite interest rates falling as the recession bit, that Government-owned bank settled on a margin of 4.29% over base for its SVR—an increase of 205% in its first year of operations. That is a scandal. In doing so, it made the prison absolutely complete, and hundreds of thousands of our constituents paid over the odds for a product they had bought in good faith, without being able to go anywhere else.

Why did that happen? The best explanation I can find is in the UK Mortgage Prisoners report, which says that the UK Government wanted to

“sell the books as soon as possible for as high a price as possible.”

The action group’s report is a damning indictment of the continued failures of Government policy, but it manages to keep the obvious emotional distress caused to its members just below the surface, to devastating effect. In meticulously researched tables, we see in black and white the money that has been lost to our economy from the detriment of keeping the SVR well above the base rate. From my calculations—I stand to be corrected by Chris—my constituent and his family have overpaid by at least £40,000.

If we cannot take away the pain and suffering this issue has caused over the years, we at least owe the victims an answer about why it happened. The LSE attributes it to the general climate created before the 2008 crash, but it is important to acknowledge how deep these roots are, because we are still dealing with so much of the fallout today.

The long tail of that era of neoliberal economics is still pernicious, because it confuses concepts such as taxpayer value with what any of us would normally take it to mean. Taxpayer value, to people like me, is not found in pauperising hundreds of thousands of households. It is not to be found in scraping back every single penny that taxpayers saw spent on ensuring that the economy did not collapse overnight.

Government is not a bank, with shareholders that need to see the principal of loans paid back in full. Government is an institution that is able to intervene in the economy at strategic moments. That is an idea that is slowly coming back into fashion, but I wonder how many of our national assets have found their way into the paws of this type of offshore capital in the intervening 40 years, leaving the taxpayer with all the costs, none of the benefits and absolutely hee-haw value.

The Government share much of the blame, and I am sure that we will hear from others of their myriad failings over the years, but we should take a moment to remember that the policy was conceived and established under a British Labour Government. Furthermore, that Government fully embraced the model of deregulated, neo-liberal economics; they continued the Thatcherite legacy of public assets being valued only where they were on the balance sheet, and taxpayers existed only in the abstract, not as individuals.

It was Gordon Brown—that saint who, we heard last week, could be elevated to the House of Lords—who set up the very FSA that allowed this tragedy to happen. The FSA, in his now infamous words, would herald

“not only light but limited regulation”

of financial markets. However, it will not do Chris or our constituents much good to dwell on the past. As I draw my remarks to a close, let us revisit my three questions for the Minister, which I think the shadow Minister should also reflect on. First, on evictions, as we begin to reach the end of the terms of those who took out 25 or 30-year mortgages at the beginning of the century, let us do what we can to lift the burden that they have carried over the years. I know, from reading briefings, that the Government are concerned about what they call the moral hazard of acting. If these people, in 2023, have not already had their houses repossessed, they must necessarily have kept up with repayments, so there is a strong case for saying that the moral hazard lies in the other direction: companies have been deliberately stringing them along.

Secondly, surely it is natural to put a cap on the SVRs being offered to mortgage prisoners, especially given the general climate of mortgage instability. Our constituents have been coping with high interest rates for a considerable time. We gain nothing from pushing them further into debt, and in the past couple of days, some interest rates have been around 12.6%. Of course, there will be a cost to the taxpayer in the abstract, but this move will be an investment that pays itself back through the cascade of money into our local economies, instead of into the pockets of offshore vulture funds. The day of balance-sheet economics needs to end.

I understand that an amendment to the Financial Services and Markets Bill was put forward in the other House by the co-chair of the all-party parliamentary group. I would be interested to hear whether the promise that the Government made when that amendment was withdrawn, to meet mortgage prisoners, has been fulfilled. The Minister knows a lot about that Bill.

Finally, the Government owe it to mortgage prisoners to find a way for them to help themselves out of this mess. They should look into providing a vehicle that allows mortgage prisoners to pivot back into the mainstream market. The first suggestion of the LSE report is that there should be free, comprehensive financial advice for all victims; almost 200,000 people should be contacted individually to help them navigate their way out of the quagmire that they find themselves in. As I said, it gives me no pleasure to conclude that it appears that there is nothing that we can do to make up for what UK Mortgage Prisoners calls the

“extortionate interest rates, severe financial restrictions and mobility and mental & physical issues caused by this Government-made scandal.”

However, that does not mean that we should not try. I hope that the Minister and the Government can see from the interest in today’s debate that they now have a chance to do what they can to make things right.