20:57 - The House divided: - Ayes: 355 / Noes: 271 - Question accordingly agreed to.
The Economic Secretary to the Treasury (John Glen)
I beg to move, That this House disagrees with Lords amendment 1.
Mr Deputy Speaker (Mr Nigel Evans)
With this it will be convenient to consider the following:
Government amendment (a) in lieu.
Lords amendments 2 to 7.
Lords amendment 8, and Government motion to disagree.
Lords amendments 9 to 21.
John Glen
I am delighted to speak again on the Financial Services Bill following its passage through the other place, where it has been well looked after by my colleagues Earl Howe, Lord True and Baroness Penn. As our first major piece of financial services legislation since leaving the EU, the Bill will enhance the UK’s world-leading prudential standards, protect financial stability, promote openness between the UK and international markets and maintain an effective financial services regulatory framework and sound capital markets.
The Bill was thoroughly scrutinised in the other place, with more than 200 amendments tabled across Committee and Report. In total, the Lords made 21 amendments to the Bill. During the passage of the Bill, there has been a lengthy discussion about how best to address issues of consumer harm in the financial sector. Lords amendment 1 before us today proposes that this should be addressed through a requirement on the Financial Conduct Authority to bring forward rules that would place a duty of care on financial services firms in relation to their customers.
The Government are committed to ensuring that financial services consumers are protected and that steps are taken quickly to address new issues when they are identified. However, the Government believe that the FCA already has the necessary powers and is acting to ensure that sufficient protections are in place for consumers. The Government therefore cannot accept this amendment, but recognise that Parliament wants to be assured that the FCA’s ongoing work will lead to meaningful change.
I will today set out the standards that firms must already adhere to when providing financial services to their customers. These are governed by the FCA’s “Principles for Business”, as well as specific requirements in the handbook. These principles set out how specific requirements on firms work, and they include:
“A firm must pay due regard to the interests of its customers and treat them fairly.”
The FCA’s enforcement powers allow it to ensure that these standards are met, although the FCA recognises that the level of harm in markets is still too high and is committed to taking further actions.
The Government agree with the concerns that were raised in the other place that this harm may in part stem from an asymmetry of information between financial services firms and their customers. The risk is that many firms may seek to exploit this asymmetry. The FCA is well aware of how informational asymmetries and behavioural biases can influence consumer behaviour, and is committed to ensuring that these issues are addressed where it considers that they may result in harm. The Government therefore support the FCA’s ongoing programme of work in this area and believe that it will deliver meaningful change for the benefit of consumers.
The FCA has considered its existing framework of principles, and whether the way in which firms have responded to the principles is sufficient to ensure that consumers have the right protections and get the right outcomes. Building on this, the FCA will consult in May on clear proposals to raise and clarify its expectations of firms’ actions and behaviours, and on any necessary changes to its principles to deliver this. These proposals will consider how to raise the level of care firms must provide to consumers through a duty of care or other provisions. Ultimately, the proposals in this consultation will seek to ensure that consumers benefit from a better level of care from financial services firms.
I have therefore tabled amendment (a) in lieu of Lords amendment 1. This amendment will require the FCA to consult on whether it should make rules providing that authorised persons owe a duty of care to consumers. It ensures that the FCA will publish its analysis of the responses to this consultation by the end of this year. It also ensures that the FCA will make final rules following that consultation before 1 August 2022.
I hope that the establishment of these clear milestones demonstrates the commitment of both the Government and the FCA to delivering better outcomes for financial services consumers. In line with commitments made in the other place regarding Parliament’s scrutiny of the financial services regulators, I can confirm that the FCA will bring its conclusions to the attention of the relevant parliamentary Committees, giving them an opportunity to consider the proposals and, if they choose, to express a view or raise any issues. The FCA will respond to any issues that are raised by parliamentary Committees.
I now turn to Lords amendment 8 on mortgage prisoners. It is an issue I take extremely seriously, but I am afraid that the Government cannot accept this amendment. We must continue to be guided by the facts and the evidence. The FCA’s analysis shows that half the 250,000 borrowers with inactive firms meet the normal risk appetite of lenders and could therefore switch if they chose to without any Government intervention.
Jim Shannon (Strangford) (DUP)
I have been contacted by many constituents who are in a precarious position and do not have such options. My hon. Friends the Members for North Antrim (Ian Paisley) and for South Antrim (Paul Girvan) have conveyed to me that some of their constituents are also in that position. I respect the Minister greatly, but is it not possible to reconsider given the precarious position that my constituents and others find themselves in?
John Glen
I thank the hon. Gentleman, as ever, for his contribution. I will go on to explain the situation of the remaining 125,000 individuals who could be categorised in that way, the actions that we have taken to date and what we will continue to look for. If that category can move without Government intervention, they are not “prisoners”.
Of the remaining 125,000 who cannot switch, 70,000 are in arrears and therefore could not secure a new deal even if they were in the active market. Those borrowers need to work with their lender to agree an appropriate repayment plan. The remaining 55,000 who are with inactive lenders and are up to date with their payments but who cannot switch are paying on average only 0.4 percentage points more than similar borrowers on reversion rates with active lenders—those with similar characteristics. The reason these borrowers are unable to switch is not that their mortgage is with an inactive firm but that they do not meet the risk appetite of lenders. They may, for example, have a combination of high loan-to-values, be on interest-only mortgages with no plan for repayment, or have higher levels of unsecured debts, non-standard sources of income or poor credit history. Similar borrowers in the active market are also typically unlikely to be offered deals with new lenders.
As I have set out previously, the Government and FCA have undertaken significant work in this area to create additional options that make switching into the active market easier for some borrowers. In particular, the modified affordability assessment allows active mortgage lenders to waive the normal affordability checks for borrowers with inactive lenders who meet certain criteria—for example, not being in arrears and not wishing to borrow more.
Kevin Hollinrake (Thirsk and Malton) (Con)
I know that the problem the Minister is trying to solve is not of his making. The problem originated when the affordability rules were changed pursuant to the financial crisis. The affordability rules were waived for people with their existing lenders who wanted to move from one fixed-rate deal, when it terminated, to the next one. Those with inactive lenders who are in the same situation cannot do that because those products are simply not available. That is one of the key problems that we have not solved yet. I would appreciate his continued efforts to work with us on this particular issue.
John Glen
I thank my hon. Friend, who, without equal in this House, has done so much to champion mortgage prisoners. I hope he will carry on working with us as we continue to improve our understanding and the quality of the data that could underpin further interventions.
I can reaffirm to the House today that my own, and this Government’s, commitment is as strong as it ever has been to finding further solutions that do not provide false hope to borrowers, but I am afraid that amendment 8 represents neither a proportionate nor practical response on this complex issue. I will address the two sections of the amendment in turn. First, the amendment seeks to cap the standard variable rate, or SVR, that inactive firms charge borrowers. This would be an unprecedented intervention in the mortgage market and is a completely disproportionate approach when the data shows that the 55,000 borrowers to which I referred pay on average 0.4 percentage points more than similar borrowers in the active market. Such drastic Government intervention should not be undertaken lightly, as it could have significant impacts above and beyond the effect that the amendment seeks.
That cap would be deeply unfair to borrowers in the active market who are in arrears or unable to secure a new fixed-rate deal, because the cap would not include them. Let us consider two hypothetical borrowers. The first borrower took out their mortgage prior to the financial crisis when, as my hon. Friend said, there were looser affordability requirements. They borrowed, in some cases, 125% of the property’s value, avoiding the need to save a deposit. Shortly after, their lender failed and had to be nationalised. The second borrower took out their mortgage following the financial crisis, when there were stricter affordability requirements. They saved a deposit of 5% or perhaps even 10%, and then were able to buy their home. Let us say that both those borrowers lost their jobs and now work in lower-paid jobs. They live in an area where property prices have not grown as much as they would have liked. Both try to keep up with their repayments, but ultimately fall into arrears, with the result that neither can easily access new deals. Neither of those borrowers has done anything wrong, and both deserve support from their lender and the wider financial system, but the Government cannot possibly agree with the idea that one should be supported by an unprecedented market intervention of this kind, and the other not. Both adhered to the prevailing conditions at the time.
I am also concerned that any cap on standard variable rates, including one only applicable to inactive lenders, would have unintended consequences for financial stability. The London School of Economics agreed and did not recommend a cap, noting that it could cause market harm. It would restrict lenders’ ability to vary rates in line with market conditions—the ability to vary SVRs allows lenders to re-price products to reflect changes to the cost of doing business—and could therefore create risks with significant implications for financial stability.
The second part of the amendment would require new fixed-rate deals to be offered to borrowers with inactive lenders, although it is unclear how that is to be achieved. Lending remains a commercial decision based on a variety of factors and it would not be right for the Government to compel lenders to provideproducts for specific groups. If the amendment is intended to require the current holders of these mortgages to offer new products, that would require firms that do not currently have the lending expertise, systems or regulatory permissions necessary to offer new mortgage products to do so. However, in opposing the amendment, I reiterate once again my commitment to continue to find further practical and proportionate options for affected borrowers, supported by facts and evidence, as I have over the past three years. Equally, I do not want to give false assurances, or false hope, for the sake of political expediency, especially when it is likely that there is a limit to what further action the Government can take to support such borrowers.
Kevin Hollinrake
Could we agree a basic principle that identical borrowers—the Minister uses the example of two similar borrowers in similar situations—should be treated exactly the same? One should not be treated better than the other. Will he agree to a principle that, if a person is a UK borrower and is in the same financial situation as others, whether they are with an active lender or an inactive lender, the treatment of those individuals should be the same: the options should be the same; the deals should be the same.
John Glen
I would be happy to seek solutions for those mortgage holders of active and inactive lenders, but my hon. Friend must recognise that different individuals have different characteristics: different loan-to-valuation ratios; different credit histories; different income flows; and different histories in their financial situation. Those characteristics cannot be factored out. None the less, I am absolutely committed to this issue and it is in that spirit that I announce today that the Treasury will work with the FCA—that means work with it on a review to its existing data on mortgage prisoners—to ensure that we have further detail on the characteristics of those borrowers who have mortgages with inactive firms and are unable to switch despite being up to date with their mortgage 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, and I will lay a copy of that review before Parliament. I know that my hon. Friend the Member for Thirsk and Malton, who has done so much excellent work in this area and who champions the cause of mortgage prisoners, may wish to bring proposals sooner than that, and, of course, I have always made myself available to Members across the House to look constructively at any solution that has merit.
The Treasury will use the results of the review that I have set out to establish whether further solutions can be found for such borrowers that are practical and proportionate. Recognising the significant constraints that I have noted, I assure the House and the other place that the Government will continue urgently to seek any further solutions that may provide support to borrowers with inactive lenders who are unable to switch, but, as I have said, those solutions must be practical and proportionate.
In addition, I am grateful to the active lenders who have come forward to offer options to these borrowers. I am also committing today to write to active lenders to urge them and the wider industry to go even further and look at what more they can do to ensure that as many borrowers as possible benefit from these options.
I hope that I have convinced the House that this amendment, in this form, is not the right solution to such a complex issue. I also hope that I have demonstrated my personal commitment, and the Government’s commitment, to continuing to seek sensible and workable solutions.
Jim Shannon
It is a pleasure to speak on this issue, Madam Deputy Speaker, and I thank you for giving me the opportunity to speak in the debate this evening.
As other Members have, I will speak to Lords amendment 8 on mortgage prisoners. In an intervention on the Minister earlier, I expressed concern about the issue. I do so having been asked by numerous constituents to highlight the dreadfully precarious position in which many have found themselves. I will give one example. The hon. Member for Thirsk and Malton (Kevin Hollinrake) also gave an example, and such examples are real-life ones of people on the frontline.
I have spoken on a number of occasions—I believe this to be the fifth time since 2017—on the subject of mortgage prisoners and, from the outset, I make it clear that my colleagues and I will vote in favour of Lords amendment 8. I have the deepest respect for the Minister, but there has to be more than cake tomorrow to assure my colleagues and me on behalf of my constituents. We hope that he and Her Majesty’s Government will do what is right for those people.
As we have all heard, the Lords amendment coined the phrase, “mortgage prisoners”. That is what my constituent has highlighted—she believes her family to be prisoners of their mortgage. She writes:
“My husband and I, like many others in Northern Ireland are classed as mortgage prisoners, through no fault of our own. Like many others in Northern Ireland, our mortgage was taken out with Northern Rock, which subsequently collapsed. Our mortgage was then sold to a vulture fund without our consent. As these vulture funds are not an active lender, they do not offer mortgages, hence are unable to offer alternative mortgage products.
We are penalised on very high interest rates, which at the moment is currently well over 4% above the BOE base rate. This is crippling us, never mind the detrimental effect that it is having on our mental health.”
Sometimes it is not just about the finances; it is the effect on mental health as well.
Her email was not the only one to use such terminology. My belief is that the Lords amendment would take strides to free those who have thus far been all but imprisoned through no fault of their own, unable to do anything but scrape by, not entitled to Government help or aid, as their wages are sufficient on paper, but not in reality. I agree that a cap on the standard variable rate of interest for mortgage prisoners on closed books would address the issue.
I do not propose to spend much time rehearsing the specific arguments, which others have done already. Instead, I wish to make two points that are self-explanatory. Last Monday, the Minister came to the House to tell us that a compensation fund for London & Capital bondholders—with a sum of £120 million of UK taxpayers’ money—would be necessary following the excellent forensic investigation and analysis report by Dame Elizabeth Gloster. I understand the rationale behind that decision, and yet it leads me to my second point : why not a solution for the mortgage prisoners tonight? As I said, and have been reiterating for years, there continues to be what I can only term a failure to regulate in any way vulture funds such as Cerberus, but at the same time Her Majesty’s Treasury rightly made the decisions on Northern Rock. Despite limited efforts by the FCA, due to the restrictions placed in legislation by Her Majesty’s Government on the regulatory perimeter, little or nothing has been done for those mortgage prisoners in more than a decade. It is time for that to stop and for Her Majesty’s Government to start finding credible solutions.
A constituent contacted me to tell me that there is a rumour that the Conservatives will impose a three-line Whip against Lords amendment 8. If that is true, it is very sad. I also believe, with respect, that it is disgraceful. Many of my constituents are worried. They have talked to me personally. My hon. Friends the Members for North Antrim (Ian Paisley) and for South Antrim (Paul Girvan), and my other colleagues have all expressed the same concern. We have to make a decision tonight on behalf of our constituents that ensures that their viewpoints are heard, and we have to do it in the best way that we can in this House, which is by how we cast our vote.
After seeing at first hand the impact of no action on the lives of mortgage prisoners in my constituency and beyond, I can do nothing but agree. If this is the line of the Government against these 250,000—or the half a million, as one hon. Member has said—struggling families, I will be supporting Lords amendment 8. I have no difficulty in that and I shall ask all other right-thinking MPs to do the same.
A decade of struggle has passed. We have it in our hands, right now, in this Chamber, to make a change. It is, I believe, right to do so. I shamelessly ask Members to do what is right on this occasion for those families in the middle section who have been squeezed beyond belief, physically, financially and mentally. Let us give relief to them, as today, right now, it is in our gift to be able to do so.
John Glen
I am extremely grateful to all Members who have contributed to this debate. I will not to rehearse the arguments that I made at the outset, but will respond in the right spirit, in the right way, to the constructive and careful analysis that we have had from many Members across the House this evening.
Let me start by addressing the right hon. Member for Wolverhampton South East (Mr McFadden). I said to him during the Committee stage that I was always listening. I think that I have proved that to be the case in the way that the Government have responded on the climate change amendment and on “buy now, pay later”. I listened very carefully to the hon. Member for Walthamstow (Stella Creasy) who spoke with characteristic deep knowledge of the sector. It is absolutely clear that we need to get the legislation and the intervention right when it comes to “buy now, pay later”. She rightly asserted the massive growth in that sector and the unfortunate consequences that will certainly befall, and that does befall, a number of consumers. We will work quickly to examine that market and what interventions will meet the need.
I am very tempted to address a whole number of points around Lords amendment 8. It is a real priority of mine to find a response that meets the unfortunate situation where people are trapped in very difficult circumstances. I pay tribute once again to my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) who made a passionate speech, identifying Louise, a mortgage prisoner, whose personal story was one to which the whole House was sympathetic. A number of other colleagues raised similar stories. None the less, I do need to have a proportionate response—a response that can take account of data. I appreciate the excellent work carried out by the all-party group and I recognise its dataset—449 people. None the less, when I am faced with data from the FCA, looking comprehensively at 23,000 cases, I cannot deny that asymmetry. I will commit to continued dialogue to try to find a way forward. Those are not empty words; they reflect the complexity of this matter—a matter that is underpinned by half a generation of different rules and regulations. Before the crisis, people could borrow in ways that today we would think totally unacceptable, and that are indeed unacceptable. The market must provide better solutions than it can provide at the moment, and I will look carefully at what we can do to ensure that that happens.
The hon. Member for Glasgow Central (Alison Thewliss) made a number of points on Lords amendment 1 about the duty of care, and I have set out at length my approach to that, which is again to examine and listen carefully to what the FCA is saying. It will then be obliged to come forward with rule changes. So these are not empty words; they recognise all the work of the charities and organisations that are highlighting this case. Of course, in financial services there is a strong dynamic of change, and the Government and regulators must be ready to step in and make appropriate interventions as that market changes.
I believe that this Bill is a key component of a new, broader regulatory strategy that will underpin the UK financial services sector as a genuine world leader now that we have left the European Union. I welcome the speeches from my hon. Friends the Members for Grantham and Stamford (Gareth Davies) and for South Cambridgeshire (Anthony Browne), which exhibited a deep knowledge and a constructive approach to this very sophisticated industry, underpinned with a lot of personal experience. I will take from this debate many points of detail. I do not agree with every point that has been made on Lords amendment 8, but I stand ready to engage with Members across the House to seek to find solutions. I am proud to have been able to lead this Bill through the House.
Lords amendment 1 disagreed to.
Government amendment (a) made in lieu of Lords amendment 1.
Lords amendments 2 to 7 agreed to.
Motion made, and Question put, That this House disagrees with Lords amendment 8.—(John Glen.)