Mortgage Prisoners

Bob Stewart Excerpts

Thursday 6th June 2019 Commons Chamber

[Mr William Wragg (Hazel Grove) (Con)]

I start by paying tribute to all those involved in the D-day landings 75 years ago today, especially remembering those who gave their lives. We and our allies will forever owe them a debt of gratitude. My constituent Alfred Barlow sadly passed away a few weeks ago, but he had hoped to be in Normandy with other veterans. I mention him particularly following the excellent speech from the hon. Member for Blackpool South (Gordon Marsden), who was a family friend of his.

Let me now turn from a debt of deep gratitude to a kind of debt that is causing harm to families across the country who are locked into uncompetitive and expensive mortgages and unable to move to other more affordable products. That may be because they are trapped by large and expensive exit fees, or—as we have heard this afternoon—because they have been told, quite perversely, that they cannot afford to move to a cheaper deal, owing to an over-rigorous application of credit-scoring or affordability checks. Many are customers with excellent track records of keeping up repayments, but they are trapped by the rigidity of the new lending criteria. Being locked into those expensive products means that they pay more than they ought to pay. That, in turn, can force them into financial hardship, and in extreme cases can lead to the loss of their homes and other assets, especially when the loan is transferred to vulture funds which seek aggressively to recover the debts.

Colleagues may have hoped that on a Back-Bench Thursday we might avoid even a mention of the European Union, but the hon. Member for East Lothian (Martin Whitfield) beat me to it. I mention the EU not with any reference to the current overarching debate, but to refer to a matter of fact. The EU mortgage credit directive is a code of conduct for mortgage firms, which we implemented in the UK in 2016. In an attempt to learn lessons from the 2008 mortgage credit crunch, rules on lenders were tightened to prevent consumers from taking out loans that they might later not be able to afford by stress-testing their ability to make repayments, even in the hypothetical event of large hikes in interest rates. In contrast to the relatively laissez-faire attitude to mortgage lending that had gone before, this was supposed to protect consumers from placing themselves in potentially precarious financial situations. However, its implementation has shown that the rules have been over-tightened, which has resulted in the creation of tens of thousands of mortgage prisoners.

As with everything, there is a general lack of agreement on whether the current rules stem inherently from the EU directive or from the UK’s implementation of it. There is also a question mark over whether the situation of mortgage prisoners is merely an unfortunate and unintended consequence which the industry is keen to rectify, or whether lenders indeed benefit from the position of customers who find themselves trapped, and may therefore have a limited appetite for reform. We have seen in other areas of financial service regulation that when debtors face distress there is always someone around to profit, and that is exactly where vulture funds come in, to pick at the remains. It is a trend that we have seen in the business banking sector too, when lenders have abused small and medium-sized enterprises to extract the maximum profit.

Like many other Members, I was contacted by several constituents before the debate, and was asked to give examples from their cases. I hope that by doing so I will highlight the human side of the story, which is often lost when we talk about market reviews and regulatory consultations. Important as those processes are to reforming the system, we must remember that behind each broken product or recalled asset is a home, and an individual or a family.

I want to mention two cases but this issue affects many more in my constituency. One gentleman from Offerton contacted me. He has a mortgage with Landmark Mortgages following the collapse of Northern Rock and was paying a fixed rate of 6% for two years, which was subsequently reduced to a variable rate of 4.7%. That is clearly quite high in the current market and he was paying a lot in mortgage repayments. I wrote to Landmark Mortgages on his behalf to ask if it would consider offering him a lower interest rate now his fixed product had ended. It declined.

Another constituent, from Hazel Grove, took out a 15-year fixed 1.25% above base rate loan secured against a portfolio of properties with the Yorkshire Bank. He placed his trust in the security of a 15-year loan. However despite his excellent credit ratings and payments being made on time and never in default he soon found himself subject to aggressive sales of further loans on higher interest rates which he felt bullied into accepting. This meant he was paying considerably more interest each month for many years until he started to struggle with the repayments. He therefore made arrangements on a number of occasions to try to refinance, but each time it was denied.

Then the bank appointed Cerberus Capital Management, a US-based private equity firm specialising in “distressed investing” to take over the loan and act in receivership. I know that some Members make more classical allusions in this Chamber than I do, but I will on this occasion indulge the House with such a reference, because Cerberus is a multi-headed dog that guards the gates of the underworld to prevent the dead from leaving; what an apt description of that company. As my constituent found to his cost, it is not in the agent’s interest to help customers, as it will lose fees, so it undermined any attempts made to resolve matters. Now my constituent has all rents from his property portfolio paid directly to the administrators and lives in constant fear that his family home—or even that of his 84-year-old mother—may be repossessed at any moment.

This is all rather similar to another issue: the treatment of small businesses by banks and the aggressive recall of loans and assets. This is an issue with which many of us are well-acquainted through the excellent work of the all-party group on fair business banking and finance, which has spent many years looking at this issue, most notably at Lloyds and the Global Restructuring Group, but it was a practice endemic across the industry.

I want to highlight a few of the similarities that are critical to this debate. The first is the apparent toothlessness of the FCA and its seeming inability or unwillingness to respond to poor practices in the market. As we saw with the business banking scandal, the FCA is slow to instigate reform, and it is not until consumer victims start piling up at its door that it takes note. It is for the Government to ensure that the FCA shows more appetite and greater urgency to protect the consumer. I welcome the current consultation on responsible lending rules and guidance, but if past experience is anything to go by I am not holding my breath that it will provide the kind of solution that customers need and deserve.

Moreover, the FCA often suggests that consumers seek redress from the ombudsmen or the courts, but that is rarely a viable option. The Financial Ombudsman Service is limited in the size of redress it can offer. For larger claims, litigation is an extremely fraught option due to the inequalities in access to justice between an individual customer and huge, often multinational, financial institutions with their armies of lawyers.

As my constituent from Hazel Grove told me:

“The bank squeezes every penny from you so you’re unable to support your family or fight for justice. The court costs of litigation are too high, therefore you’re unable to make a claim or file to protect your rights. I am unable to get legal aid as it’s a civil matter. If you try to bring a claim the banks just say to the court that they will want a cost order, and proof that you can pay the bank’s costs if you lose, which of course I can’t.”

[Bob Stewart (Beckenham) (Con)]

The FCA seems to be an organisation that either ignores people, puts us in a pending tray forever, tells us to go away or suggests we go to an ombudsman, but very rarely does it actually do its job. It is time it was sorted out.

--- Later in debate ---

[Bob Stewart (Beckenham) (Con)]

As an old soldier, I am conscious, as is the House, that at this time 75 years ago, our troops had gained a foothold on Gold and Sword beaches, the Canadians were on Juno and troops were on Utah, but on bloody Omaha, where 2,500 men’s lives were taken on this day 75 years ago, people were still trying to get on to the beach. The sea was red with blood, troops were drowning as they got off the landing craft, and when they did get a foothold on the sand under the water, they had to push bodies away before they were massacred on the beach. In the first waves, 90% of those incredibly brave American soldiers were casualties. We are talking today about something that matters very much to our constituents, but we should also—I have a right to say this, I think—bear in mind the absolute fear and worry of our troops at this moment 75 years ago.

My speech will be short, because Mr Deputy Speaker has told me that it has to be—

[Mr Deputy Speaker (Sir Lindsay Hoyle)]

I assure the hon. Gentleman that he can take up to 10 minutes. How is that? I will be as generous as that.

[Bob Stewart]

Mr Deputy Speaker is such a great man. I thought I was being told off earlier.

My comments will be short because I have spoken about this matter and the associated problems many times in the nine years for which I have been a Member of Parliament. Colleagues on both sides of the House are nodding. Why the heck has this matter not been sorted out? We are meant to sort these matters out—we are meant to be the people who legislate to get such injustices sorted and done. We have failed collectively to do that.

In particular, I want to raise the matter of the injustice done to my constituents—to the D’Eye family. Dean, my friend, is somewhere around, but I am not allowed to point him out. An injustice was done to him and his family by these banks. I am referring to Dunbar Bank, part of the Zurich group, and also the Royal Bank of Scotland’s Global Restructuring Group. I just cannot understand it. Decent people run these associations and they are actually—dare I use the word—screwing people utterly and completely, and it is immoral.

[Kevin Hollinrake]

indicated assent.

--- Later in debate ---

[Bob Stewart]

I am glad to say that my colleagues agree with me.

It seems to me that it is also far too easy for banks to get rid of their problem by selling on their loan accounts to unscrupulous debt recovery firms—vulture firms—that entangle decent, hard-working people, such as the D’Eye family, in a web. That is utterly wrong. These people cannot get out of it because they just do not have the money, and that is utterly wrong. Originators of loans should not be able to get rid of their responsibilities in this way. It is wrong, colleagues! It is wrong!

I want to end my remarks by talking about the Financial Conduct Authority, which does not seem to have the will or the authority to sort out this matter—to force the banks to investigate and deal with these legacy issues. The Economic Secretary to the Treasury, who is a good friend of mine, is looking at me with a scowl, but in a nice way. He is a great friend and an utterly decent man who would really like to sort out this matter—he has to now after I have said such nice things about him. I am now expecting that to happen.

I truly believe that, somehow or other, we people in this House must get this matter resolved. It is wrong that we have not sorted it for the people whom we represent. I have been here for nine years and feel ashamed that we have not resolved the matter. I thank you, Mr Deputy Speaker—oh, it is Madam Deputy Speaker. I thought that Mr Deputy Speaker had got far more attractive while I was speaking. Thank you, Madam Deputy Speaker, I will now shut up.