Rothschild Bank and Mortgage Equity Release (Spain)

(Limited Text - Ministerial Extracts only)

Wednesday 22nd January 2014 Westminster Hall

[The Financial Secretary to the Treasury (Sajid Javid)]

I welcome you to the Chair, Mr Turner. It is always a pleasure to serve under your chairmanship. I thank the hon. Member for Ogmore (Huw Irranca-Davies) for making a powerful case on behalf of his constituents. I assure him that I have listened very carefully.

Some of us will have constituents affected by these products who now face an uncertain financial future instead of the comfortable retirement they thought they had earned. As the hon. Gentleman said, the equity release products in question were sold to some UK pensioners resident in Spain. It seems that they were sold by independent financial advisers operating in Spain who suggested that they release equity from their houses and invest the loan in a fund, often claiming that that would have inheritance tax benefits. The products were then provided by a variety of banks, mainly based in Scandinavia, but including Rothschild bank.

With the onset of the financial crisis, those investments did not perform, so many of the investors breached the terms of the loan they were given. That has left many expats in Spain, including those from the UK, with significant financial losses. Some of the banks involved, many of which were facing their own financial difficulties, have sought to repossess the properties on which the loans were secured. That has left some pensioners facing not only large losses, but the threat of repossession, which is a stark contrast with the comfortable retirement they had planned.

Of course, I am sympathetic to the difficulties that these people are facing. Many of them have lost a great deal, but I am afraid that the Government’s ability to act in this case is limited. The products were not sold in the UK or by UK companies and the loans were not secured against properties located in this country, so the UK authorities do not have any jurisdiction over that activity.

What I have said will be frustrating for the individuals involved, but the same rules allow our own regulators to protect our domestic consumers from foreign banks operating here in the UK. I realise that some banks in Europe were involved in providing the products sold by independent financial advisers in Spain. The hon. Gentleman highlighted Rothschild bank specifically. It has strong historic connections with the UK.

I have looked into the matter further, and I understand that Rothschild sold around 130 of the products between 2005 and 2008. However, that activity was carried out by its Guernsey-based entity and, as the hon. Gentleman knows, the Channel Islands do not come under the jurisdiction of the UK Government or UK regulators. The Guernsey regulator may have some jurisdiction over the design and distribution of the product, but that is not for the UK authorities to establish. I understand that some of those who have lost out have taken the case up with the Spanish authorities, and that may be an appropriate option for them.

I am sorry to report that the UK Government have limited influence over this case. I understand that Rothschild has provided affected customers with some flexibility. For example, it is my understanding that it is not repossessing the properties of those that have been affected. That, of course, is welcome. As I said, the UK authorities do not have any jurisdiction over this activity. However, I appreciate that Rothschild has major operations in the UK, so I am happy to write to it to pass on some of the concerns that the hon. Gentleman has raised. I will also raise the matter with my counterparts in Spain and Guernsey to bring it to their attention. I will be more than happy to meet the hon. Gentleman and his constituents if he would find that useful.

The hon. Gentleman may be interested to know that the UK ambassador to Spain wrote to the Spanish regulator about this issue in 2012. Following that exchange, the Foreign Office published advice for people considering taking out equity release products in Spain. It highlighted the importance of checking that the company offering the mortgage is registered with the Spanish financial regulator, known as the CNMV. The publication explains that consumers unhappy with the product should first complain to the company responsible and that, if they are still dissatisfied, they can complain to the Spanish financial regulator.

In a broader context, my hon. Friend the Member for South Derbyshire (Heather Wheeler) gave sensible advice for people who are thinking of taking out similar equity release products in the UK.

In summary, I fully understand and support the hon. Gentleman’s concerns for his constituents affected by these products.

[Huw Irranca-Davies]

I thank the Minister for a very positive, full and helpful response. He may not be able to answer this question now, but does he think that there is any scope within European legislation or elsewhere to avoid this situation happening in the future? In this situation, a UK-based company that has a subsidiary in Guernsey operates in Spain, and people assume that it is applying the same ethical and moral standards elsewhere. Let us lift the debate above Rothschild for a moment. Any company doing what has been described could, within the European Union, be brought to book in one way or the other. Does the Minister think that there is something there that we should be exploring?

[Sajid Javid]

When I first looked into the issue, I thought about that. Unfortunately, I do not think that there is such an avenue through European Union institutions. I am happy to explore the matter further; perhaps when we meet, I can give the hon. Gentleman more information. He may be interested to know that there is currently a mortgage market directive. It is in its final stages in the European Union, but I think that I am right in saying that it does not include equity release products. Obviously, it would not have helped the hon. Gentleman’s constituents anyway; it is for the future.

I am happy to raise the issue with people in the way I have explained to the hon. Gentleman and I thank him again for bringing up this case. I will be happy to report back to him.

[Huw Irranca-Davies]

The few minutes remaining provide an opportunity to get more issues on the record. The Minister may be interested in responding to some other people who have written to me subsequently, when they learned of the debate. One of them wrote:

“When my wife and I met Mr Dewsnip”—

who came up earlier in the debate—

“at one of his public presentations and had a private chat with him after the main event, he most certainly did advise us as to the suitability of the investment fund and assured us that Rothschild would be working on a daily basis with the fund managers to ensure that it was meeting expectations and performing as expected.”

I could cite other examples that imply an intimate, daily, minute-by-minute relationship, but I have yet to discover whether that also means that Rothschild or anyone who worked for Rothschild was financially benefiting from it. That would be interesting and it may figure in a subsequent meeting that I have with Rothschild.

[Sajid Javid]

The hon. Gentleman is right to ask such questions and to raise them in any meeting that he may have with Rothschild and with the relevant regulators for the entities that we have discussed today. I will report back to the hon. Gentleman in due course. I thank him again for raising this important issue.

Question put and agreed to.