Mortgage Prisoners

Chris Stephens Excerpts

Wednesday 28th June 2023 Westminster Hall

[Chris Stephens (Glasgow South West) (SNP)]

It is a pleasure to see you in the Chair, Mr Robertson. I congratulate my good friend and comrade, my hon. Friend the Member for West Dunbartonshire (Martin Docherty-Hughes), on securing the debate and on giving an excellent outline of the position of so many people who are caught up in this scandal. I compliment the hon. Members for North Norfolk (Duncan Baker) and for Feltham and Heston (Seema Malhotra) on their excellent speeches, too.

As others have said, mortgage prisoners are people who cannot switch mortgages to a better deal, even if they are up to date with their payments. It is estimated that up to 40,000 people in Scotland are currently in the category of mortgage prisoners. Most mortgage prisoners have a mortgage in a closed book of an inactive firm, which means that the mortgage is held with a lender that can no longer make mortgage contracts because they are not authorised to do so. At the same time, regulators and lenders are imposing more stringent criteria on borrowing to help to prevent another financial crash, and many people are unable to meet the new conditions. As a result, they are unable to move to other deals, even if they would pay less by doing so.

Stakeholders including Martin Lewis and the UK Mortgage Prisoners action group have consistently criticised the Government for not taking action to help mortgage prisoners. Earlier this year, a report produced by the London School of Economics and funded by Martin Lewis said that the UK Government had made a surplus of £2.4 billion from the sale of mortgage books. It offered costed proposals that it argued would meet Government criteria for helping to solve the problem.

As we know, there have been previous parliamentary debates on the issue. In 2021, the Lords agreed an amendment to the Financial Services and Markets Bill that the Commons voted against during ping-pong. The Government argued that it would be an unacceptable and unfair intervention in the mortgage market; as a result, the Lords agreed to remove the amendment. The chief executive of the FCA told the Treasury Committee in May 2021 that further reforms to help to resolve the situation were up to Parliament. In March 2023, Lord Sharkey introduced an amendment to the Financial Services and Markets Bill that was identical to the one passed in 2021, but he agreed to withdraw it when the Government promised to meet stakeholders to discuss the proposals in the LSE report. I hope the Minister will update the House on where those discussions are.

It is abhorrent that people are at risk of losing their homes as a result of being mis-sold their mortgages prior to the financial crash. Homeowners across the UK are being hit by soaring mortgage rates, but mortgage prisoners are being hit even harder.

[Martin Docherty-Hughes]

My opening speech explained why we got here. Does my hon. Friend agree that an addiction to a neo-liberal economic model is to blame for the treatment of mortgage prisoners?

[Chris Stephens]

I agree. There is also a poverty premium that we need to discuss, which I will come to shortly.

As Rachel Neale from the UK Mortgage Prisoners campaign group has noted, their interest rates have gone from 4.5% all the way up to 9%, 9.5%, 10% and above. A number of these homeowners have been trapped—

[Seema Malhotra]

Rachel Neale is present. I thank her for coming along today.

[Chris Stephens]

I am grateful that Rachel Neale and others who are caught up in this situation and who are in the action group are here in the Gallery today. I hope they looked forward to this debate, and I hope that the Minister will be able to reassure them and give them solutions, as a result of the debate secured by my hon. Friend the Member for West Dunbartonshire.

To put the figures into perspective, someone with an interest-only loan of £120,000 managed by Landmark Mortgages would have seen their payments shoot up by £5,100 a year even before the latest interest rate rise, which was announced last week. This is one of the starkest examples of the poverty premium that I have referred to in answering my hon. Friend the Member for West Dunbartonshire. People who are unable to meet affordability criteria pay way over the odds for something for which people in better financial positions are charged much less. It is incredibly unfair that these individuals are paying the price for widespread irresponsible lending prior to 2008.

UK Mortgage Prisoners have highlighted the dire impact that being a mortgage prisoner has on people’s mental health. I will quote Rachel Neale again:

“We have had people openly put on the [Facebook] group that they want to commit suicide if this rate rise happens because they have nowhere to go. It’s devastating—families are in impoverished situations, they’re facing homelessness.”

That is the seriousness of the situation.

In 2020, UK Mortgage Prisoners carried out a survey among mortgage prisoners and found that 3% had contemplated suicide as a result of their situation. It is not unreasonable to assume that that already high figure will likely have increased during the current crisis.

The UK Government must finally take steps to support mortgage prisoners and enable them to re-mortgage with active lenders. The London School of Economics report on mortgage prisoners includes indicative costings, as requested by the Government. The report sets out a range of solutions for helping mortgage prisoners to be able to re-mortgage with active lenders, including free comprehensive financial advice for all mortgage prisoners, which is required for any borrower who might go on to access other solutions; interest-free equity loans to clear the unsecured element of Northern Rock’s “Together” loans; Government equity loans that are interest-free for the first five years on the model of help to buy; and a fall-back option of a Government guarantee for active lenders to offer prisoners new mortgages.

It is estimated that those solutions could cost between £50 million and £348 million over 10 years, depending on take-up. While the overall outlay would be between £370 million to £2.7 billion, that is reduced to £50 million to £347 million net as the Government would hold some equity loans themselves.

The Government have a moral duty to act to support mortgage prisoners, because being in that position has a devastating impact on individuals, and because the UK Government made a surplus of £2.4 billion from the sale of the mortgage books, according to the London School of Economics report. It is an indictment of the UK Government that they have left it to an individual campaigner, Martin Lewis, to fund the study, despite being fully aware of the utter misery caused by the situation facing financial prisoners. Now that campaigners in the LSE have done the hard work and presented the UK Government with fully costed plans that meet their criteria, the very least they could do is to take the steps needed to bring those plans into action.

I will close with a quote from Rachel Neale from the group:

“The severe harm already endured for over a decade, compounded now by 10 consecutive rate rises, means time is not a currency mortgage prisoners have. The proposed solutions need to be considered in detail, and urgent action is required now before more homes and lives are lost.”

I look forward to the Minister’s response to that contribution.