Mortgage Prisoners

Peter Dowd Excerpts

Thursday 6th June 2019 Commons Chamber

[Peter Dowd (Bootle) (Lab)]

I thank the hon. Member for Dover (Charlie Elphicke) for securing this debate, and for his comments about his constituents, who he described as real people with real lives and terrible fears about already high interest rates increasing further. He spoke about the need to move from a computer-driven affordability test to a reality test, so that we can say yes to people and there will be better protections. He also said that capitalism must be tempered by responsibility and fairness, and that the interests of the consumer must be put before corporate interests. I agree with him.

My hon. Friend the Member for Blackpool South (Gordon Marsden) said that he was drawn in by the real-life experiences of his constituents, and that what the Government and the FCA have done so far is inadequate. He paid tribute to those journalists who exposed the role of lenders, and said there has been insufficient due diligence in the process. He said that we have a moral duty to act, and called for a formal inquiry.

The hon. Member for Camborne and Redruth (George Eustice) talked about the need for a statutory obligation to permit a switch to more affordable products if necessary, and a powerful presumption, if that is not allowed, for non-possession where the switch has been refused. I think that that is a perfectly reasonable position to take.

My hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) talked about the enormous hardship placed on customers, who are being punished because they have been caught up in the middle of regulatory change. She said that selling off to Cerberus was a major policy failure and that UK Assets Ltd was misled. She also said that the FCA has been complacent, and that Ministers should do something about that particular issue.

The hon. Member for Ayr, Carrick and Cumnock (Bill Grant) was surprised to see regulated mortgages sold off to unregulated companies. The impact on his constituents was to put them in terribly stressful situations and he said that that experience remains raw. As he said, “See it, say it, sorted.”

My hon. Friend the Member for East Lothian (Martin Whitfield) asked why, when we have a land of home ownership, we are allowing such a threat to that home ownership by the practices of unregulated lenders that can be accessed via an email. He said that there are 300 to 400 people affected in each constituency.

The hon. Member for Hazel Grove (Mr Wragg) talked about people trapped by large exit fees or the rigidity of new lending criteria, leading in some cases to the loss of homes and assets transferred to vulture funds. He reminded us that behind each broken product is a person and a home.

My hon. Friend the Member for Glasgow North East (Mr Sweeney) said that part of the legacy of the crash was banks seeking to benefit from the turmoil, with people trapped in purgatory. Let us hope it is purgatory, because you can get out of purgatory. It is very difficult to get out of hell.

The hon. Member for Sutton and Cheam (Paul Scully) gave an example of how his constituents, like so many people, were affected by the transfer to Cerberus and how they are locked in to a poor product, with the consequential impact on their lives and finances of having to pay three or maybe four times the usual interest rate.

The hon. Member for Strangford (Jim Shannon) called for an urgent inquiry into the issue. He wanted to add his support to addressing this particular subject. He referred to the grooming of customers in order to rip them off even more and how banks have little interest in customers whose mortgages they have sold on, and said that that is not acceptable.

The hon. and gallant Member for Beckenham (Bob Stewart) paid tribute to troops on D-day. I think we all support and give our full commitment to that. He then asked why this matter had not been sorted out. He did so in his usual wishy-washy way by skirting around the issue: he simply said that it is wrong for the people we represent and he is right.

The hon. Member for Thirsk and Malton (Kevin Hollinrake) gave an excellent speech. It was a very considered, thoughtful and forensic speech which asked the question: why on earth do we let them get away with it? Why did we let them get away with it before the crash? They created the conditions and the process, and then they went back to consumers and businesses and said that their businesses, houses or mortgages were no longer sustainable. The impact is on families. The bankers created the conditions for mortgage prisoners and it is really up to us to do something about it.

The hon. Member for Stirling (Stephen Kerr) talked about the damage to people’s life chances. The selling off to vulture funds has led to thousands of people being caught up in unregulated systems, with a lot of asset-stripping going on.

Finally, the hon. Member for Glasgow Central (Alison Thewliss) set out the cost of higher interest rates as a result of the lack of access to more competitive rates and the impact on businesses. She made the point that this is not just a legacy issue, but a threat to the future.

I understand that this is the seventh debate that we have held on banking in a year. I have to say that it is a sad state of affairs when we are having a debate on mortgage prisoners and vulture funds. There is something wrong with that and it speaks volumes. I was at a meeting today with about 25 people who are either affected by the issue or who are helping and supporting those who are affected. I suspect that many are in the Public Gallery today and I welcome them. Some are in despair and feel completely powerless against powerful bodies that simply ignore them, and they feel let down by us.

Lenders have an approach to their customers that is simply take it or leave it. Since the global financial crisis, we have heard many voices in this House speaking about the cost of that disastrous period, born out of rapacity, as the hon. Member for Thirsk and Malton said. In some quarters, that rapacity continues. I am sorry to say that UK Asset Resolution Limited, which is owned by the state, has not helped in the curtailment of that culture and has potentially encouraged it, even if by default. As many people have asked, why, for example, has it sold off mortgages to companies that are not regulated? In effect, they have been left at the mercy of those companies by the state and the Government. That is not acceptable. A Government company selling off assets to unregulated companies—it is difficult to believe.

My first question to the Minister is this: why has the Government allowed UK Asset Resolution Limited to do that? What is he going to do about that, and about the 200,000 people financially imprisoned by this scam? I do not accept in any way the Government’s argument that this is a question of being at arm’s length from these matters. How can the Government take such an approach when their citizens are being ripped off? They are in danger of aiding and abetting that ripping off. How can they continue to allow people who pay their mortgages and bills, and who carry on with their daily living against the odds, to be penalised? People are in a position where the inequality of bargaining is causing no end of hardship, worry, familial dislocation and, in some cases, attempts at suicide and perhaps loss of life. Millions of people have suffered from not just the recession caused by the rapacity of banks, but the cuts to social security and public spending that followed. I remind Members that in one fashion or another, the banking bail-out cost £1.5 trillion to put right, according to the Office for National Statistics.

We are hearing today about one group who have particularly suffered as a result of the financial meltdown and the decisions that have been taken since. For many Members of this House—and members of the public—who have mortgages, it seems unconscionable that we have not been able to refinance them at more competitive rates. The ability to do so is part of a healthy mortgage market that does not allow lenders to abuse their positions. The reality of those locked into interest rates that are sometimes three times the going rate can be horrendous, as we have heard time and again today from the 14 or 15 Members who spoke.

How can it be possible that people are ineligible for a mortgage when they will be paying less? That question has been asked so many times today. What a bizarre state of affairs. It will cost people less than their current mortgage so they cannot have it. Did we bail out the system only to allow the system to continue to penalise people who have not failed to keep up payments? These consumers, despite being up-to-date with their mortgage payments and seeking to move to a more affordable deal without borrowing more, are being held back by inactive lenders and entities not authorised for mortgage lending.

The practice of selling mortgages and unregulated commercial loans to unregulated funds has been creating mortgage prisoners, exposes businesses to asset stripping and threatens to continue to create further mortgage prisoners and risks to businesses, as laid out in the motion. Yet we seem to be seeing a curious case of blame-shifting. The chief executive of the Financial Conduct Authority referred in evidence to the Treasury Committee last year to a “peculiarity” of EU law. A peculiarity—is that it? Others seem to have suggested that the UK’s interpretation of the law is at fault. At any rate, the directive was brought into UK law in 2016, so the Government of the time and the Government of today have a responsibility to deal with the problem, wherever and whenever it originates. As I said earlier, its origins lie in the reckless behaviour of the those in the banking sector in the years running up to the crash. They were not reckless in lending to so many individuals, but they were reckless in their general approach to risk and exposure to little-understood derivatives. As a result of their behaviour, the aggressive downsizing of balance sheets meant that people with no history of default were put into high-risk groups and, ultimately, had their mortgages transferred to vulture funds, becoming de facto credit risks despite impeccable credit histories. Many of these funds are outside the purview of standard regulation, and the FCA may in some cases legitimately claim that as a result there is little it can do. However, it must come forward with proposals, rather than just sitting on the sidelines. That is its responsibility.

I pay tribute to all the campaigners who have brought this matter to the attention of the House, including the hon. Member for Thirsk and Malton and the all-party parliamentary group on fair business banking. They have been absolute stalwarts in pursuing the matter. I urge the Government to move as quickly as possible to establish whether the problem lies in EU regulation or in its interpretation, and to address it as swiftly as possible.

I am glad that the hon. Member for Hazel Grove referred to Cerberus, which features in Greek mythology. This particular three-headed dog, however, locked victims not just in hell but in negativity, repetition and hopelessness. This dog is symbolic of the inability of people to leave because they are trapped in an expensive mortgage hell. The Government must now put it on a leash, and sort out the rules.

[Madam Deputy Speaker (Dame Eleanor Laing)]

Before I call the Minister, let me echo the words of the hon. Member for Bootle (Peter Dowd) in welcoming to the Public Gallery a great many people who are interested and involved in this subject, and who, I gather, have met Members this afternoon. I see Members assenting to that.

I draw attention to this because we so often hear criticism of what happens in the Chamber, and hear it described as a circus or a bear pit. It is delightful for once to be able to show the people who care about this subject that when matters are debated properly, thoughtfully, forensically and collaboratively here in the Chamber, it makes a difference.

--- Later in debate ---

[John Glen]

As I have tried to set out, I am not the arbiter of this specific issue, and it would be wrong for me to be drawn into the outcome before the consultation has concluded. That is imminent, however, as is the implementation of the solution.

[Peter Dowd]

I completely understand where the Minister is coming from, but it would be helpful if, at some point—not today; I accept that—he could set out the catalogue of metrics that will be used to ensure that these regulations, this interpretation, whatever it is, are operating practically within six, 12 or 18 months.

[John Glen]

That is a reasonable point to make. This intervention has to be meaningful and it has to deal with the problem of mortgage prisoners. I am very clear about that, and we in the Treasury will need to look carefully at how we evaluate this. As I was saying, I see plenty of innovation across the mortgage market and I look forward to seeing what affordable options lenders can offer to mortgage prisoners who are looking to switch.

Let me turn to the Government’s sales of mortgage books to purchasers that are not active lenders. Much of this afternoon’s debate has focused on the firms that purchase these mortgage books. It is regrettable that the Government have not received any reasonable bids from active lenders, with feedback suggesting that they have limited appetite for these loans. However, I would like to make it clear to the House that the administrators of these mortgage books must be FCA-regulated, regardless of whether they are active lenders. Any consumer whose mortgage is held by one of these firms has full recourse to FCA protections, including treatment in accordance with the FCA’s “treating customers fairly” principles, and the ability to complain to the Financial Ombudsman Service.

I have heard the comments about borrowers having their reversion rates drastically increased. To safeguard against this during asset sales, the Government have put in place contractual protections that have been enhanced to ensure that the terms and conditions of the original loans are honoured and, in the latest asset sale, to ensure that future rate rises are in line with the rates charged by the largest active lenders. This means that a customer will be treated broadly the same as if their mortgage was with an active lender, with payments in accordance with their original contract terms.