Asked by: Dan Jarvis (Labour - Barnsley North)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, whether his Department has plans to support mortgage prisoners who are in negative equity paying high interest rates and wish to sell their properties.
Answered by John Glen
The Government has undertaken significant work to understand the circumstances of borrowers whose mortgages are held by inactive firms, and it has worked with the FCA to create additional options for these borrowers, including through the introduction of a Modified Affordability Assessment which allows mortgage lenders to waive the normal affordability checks for borrowers with inactive firms who meet certain criteria, such as not wishing to borrow more.
During the recent passage of the Financial Services Act, I announced that the Treasury will work with the FCA on a review of their existing data to provide further detail on the characteristics of borrowers who have mortgages with inactive firms and are unable to switch, despite being up to date with payments. The FCA will also review the effect of its recent interventions to remove regulatory barriers to switching for mortgage prisoners and will report on this by the end of November. This will include borrowers who may be in negative equity. The Treasury will use the results of this review to establish whether there are any further possible solutions that can be found for these borrowers that are practical and proportionate.
Asked by: Sarah Olney (Liberal Democrat - Richmond Park)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, if he will provide immediate financial relief to all 250,000 families in closed mortgage books.
Answered by John Glen
The Government has undertaken significant work to understand the circumstances of borrowers whose mortgages are held by inactive firms, and it has worked with the FCA to create additional options for these borrowers, including through the introduction of a Modified Affordability Assessment which allows mortgage lenders to waive the normal affordability checks for borrowers with inactive firms who meet certain criteria, such as not wishing to borrow more. It is also worth reiterating that not all of the 250,000 borrowers whose mortgages are held by inactive firms are mortgage prisoners, as the FCA estimate that around half of these borrowers already meet the normal risk appetite of lenders and so could switch to an active lender.
During the recent passage of the Financial Services Act, I announced that the Treasury will work with the FCA on a review of their existing data to provide further detail on the characteristics of borrowers who have mortgages with inactive firms and are unable to switch, despite being up to date with payments. The FCA will also review the effect of its recent interventions to remove regulatory barriers to switching for mortgage prisoners and will report on this by the end of November. The Treasury will use the results of this review to establish whether there are any further possible solutions that can be found for these borrowers that are practical and proportionate.
Asked by: Kevin Hollinrake (Conservative - Thirsk and Malton)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, what steps his Department is taking to (a) ensure vulture funds treat customers fairly; and (b) prevent the creation of mortgage prisoners through the sale of loan books to unregulated entities.
Answered by John Glen
The FCA have advised that borrowers with inactive lenders, such as UK Asset Resolution (UKAR), are no less protected, when the legal title holder is regulated, than those with active lenders. The Government is also open to extending the Financial Conduct Authority’s (FCA) regulatory perimeter, but is yet to see evidence to suggest that there are borrowers that are currently being harmed by the current regulatory regime and that would therefore be helped by extending the FCA’s remit.
All sales of UKAR loans have included robust, non-negotiable protections to ensure the continued fair treatment of customers. These have included: adherence to the FCA’s Treating Customers Fairly (TCF) principles; its Mortgages and Home Finance: Conduct of Business (MCOB) rules; recourse to the Financial Ombudsman Service (FOS); and restrictions to the changes the buyer can make to standard variable rates (SVRs) for at least 12 months after the transfer of ownership. There have also been no changes to the terms and conditions of the loans which have been sold, and sales of UKAR loans have also not negatively impacted the ability of affected customers to re-mortgage elsewhere.
The Government has worked with the FCA to provide switching options for consumers with inactive lenders and will continue to support these customers where they would see genuine benefit from switching.
Asked by: Stephanie Peacock (Labour - Barnsley South)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, what steps the Government has taken to ensure that base rate cuts are passed on by lenders to mortgage prisoners.
Answered by John Glen
The Financial Conduct Authority have written to all closed-book firms following the disruption caused by the COVID-19 pandemic, encouraging them to pass on base rate reductions in accordance with their fair treatment guidelines.
Data released in July 2020 stated that customers with inactive lenders pay on average just 0.4% more than borrowers with the same lending characteristics with active lenders. The Government is committed to helping mortgage prisoners where they will see genuine benefit and will continue to work with the Financial Conduct Authority and industry to provide switching options for borrowers with an inactive lender.
Asked by: Gill Furniss (Labour - Sheffield Brightside and Hillsborough)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, what plans he has to cap standard variable mortgage rates for inactive lenders to protect people who cannot move their mortgages.
Answered by John Glen
Data released in July 2020 stated that customers with inactive lenders pay on average just 0.4% more than borrowers with the same lending characteristics with active lenders. In addition, the recent London School of Economics report on mortgage prisoners noted “capping SVRs at a level close to the best rate for new loans could create harm in other parts of the market, and we do not recommend it”.
The government is working closely with the Financial Conduct Authority and industry to develop switching options for mortgage consumers with inactive lenders.
Asked by: Dan Jarvis (Labour - Barnsley North)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, what assessment he has made of the effect on the economy of introducing a cap to the Standard Variable Rates charged to closed book mortgage prisoners.
Answered by John Glen
The Financial Conduct Authority’s 2019 Mortgage Market Review found that direct price intervention was not required at this time as the current market is working well for the vast majority of borrowers. FCA data released in July 2020 stated that customers with inactive lenders pay on average just 0.4% more than borrowers with the same lending characteristics with active lenders. In addition, the recent London School of Economics report on mortgage prisoners noted “capping SVRs at a level close to the best rate for new loans could create harm in other parts of the market, and we do not recommend it”.
Asked by: Dan Jarvis (Labour - Barnsley North)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, what steps he is taking to reduce the number of mortgage prisoners.
Answered by John Glen
The government is committed to helping mortgage prisoners where they will see genuine benefit. This has included work with the Financial conduct Authority to implement rule changes to its mortgage lending rules, removing the regulatory barrier that prevented some customers, who otherwise may have been able to switch, from accessing new products. The new rules should allow customers to switch to an active lender as long as they meet the lenders’ risk appetite and meet certain criteria, such as not looking to borrow more and be up to date with payments. Inactive lenders have now started contacting borrowers who have been struggling to switch, setting out new options that may be available for them on the active market. A number of lenders have also come forward with products specifically for these borrowers.
In addition, the Money and Pensions Service (MaPS) launched online information and a dedicated phone service (accessible via MaPS’ main contact number) as a key source of information and advice for borrowers with inactive lenders, including signposting to specific brokers that will be able to help them look for a deal with an active lender.
Asked by: Patricia Gibson (Scottish National Party - North Ayrshire and Arran)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, what plans he has to provide financial support or compensation to homeowners who are mortgage prisoners with Northern Rock Asset Management.
Answered by John Glen
We remain committed to supporting as many borrowers as possible with inactive lenders move to a cheaper deal. The government has worked with the FCA to implement rule changes to its mortgage lending rules, removing the regulatory barrier that prevented some customers, who otherwise may have been able to switch, from accessing new products. Inactive lenders have now started contacting borrowers who have been struggling to switch, setting out that options may be available for them on the active market. I will monitor the situation and hope to see even more options available over the coming months.
The FCA recently confirmed additional options to support borrowers, including making intragroup switching easier and extending the window in which interest-only borrowers coming to the end of their term can continue making interest payments, without paying down the capital. These modified rules came into force on 23 October 2020. More information can be found here: https://www.fca.org.uk/news/press-releases/fca-confirms-measures-support-closed-book-and-interest-only-part-and-part-mortgage-borrowers.
UK Asset Resolution (UKAR) – the owner of the Northern Rock Asset Management mortgage portfolio - has worked to help customers looking for a better deal with another lender by;
It is also worth noting that Norther Rock Asset Management’s Standard Variable Rate (SVR) has always been set in line with the SVRs of active lenders.
Asked by: Claire Hanna (Social Democratic & Labour Party - Belfast South and Mid Down)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, what assessment he has made of the implications for his policies of the proposals made by the London School of Economics on mortgage prisoners, published 11 November 2020.
Answered by John Glen
We are grateful to London School of Economics (LSE) and Martin Lewis for their contribution to this conversation.
We remain committed to supporting these borrowers and are pleased that active lenders have started offering switching options specifically for mortgage prisoners taking advantage of the new flexibilities given to them by the FCA. We will monitor the impact of this in the coming months.
Asked by: Gill Furniss (Labour - Sheffield Brightside and Hillsborough)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, what steps he is taking to support mortgage prisoners.
Answered by John Glen
The Government remains committed to supporting these borrowers and has worked with the FCA to implement rule changes to its mortgage lending rules, removing the regulatory barrier that prevented some customers, who otherwise may have been able to switch, from accessing new products. The new rules should allow customers to switch to an active lender as long as they meet the lenders’ risk appetite and meet certain criteria, such as not looking to borrow more. Lenders have now started contacting borrowers who have been struggling to switch with options specifically designed for them, and I hope to see even more options from active lenders over the coming months.
Some customers may not be eligible to access new mortgage products in line with the adapted affordability assessment. This is why the FCA recently confirmed additional options to support borrowers, including making intragroup switching easier and extending interest-only payments, recognising the impact of Covid-19 on borrowers. These modified rules came into force on 23 October 2020.
Moreover, on 14 September, the Money and Pensions Service (MaPS) launched online information and a dedicated phone service (accessible via MaPS’ main contact number) as a key source of information and advice for borrowers with inactive lenders, including signposting to specific brokers that will be able to help.
The Government continues to work with the mortgage lending sector to ensure support is available for consumers.
The FCA also recently noted that firms should be reviewing their variable rates to ensure they adhere to regulations regarding the fair treatment of consumers. The full statement can be found here: https://www.fca.org.uk/news/statements/statement-mortgage-prisoners