Mortgage Prisoners Inquiry Bill [HL]

Lord Sharkey Excerpts

Friday 7th February 2025 Lords Chamber

Moved by

[Lord Sharkey]

That the Bill be now read a second time.

[Lord Sharkey (LD)]

My Lords, mortgage prisoners are people who are stuck with their existing lenders and cannot access a better deal such as a fixed rate. As a result, mortgage prisoners continue to pay interest rates on their mortgages at around four percentage points over normal market rates, costing them hundreds of thousands of pounds extra per year. According to the mortgage prisoners action group, there are around 195,000 mortgage prisoners; by narrowing significantly the definition of a mortgage prisoner, the FCA, completely implausibly, comes up with a much smaller number.

This Bill proposes an independent inquiry into the 17 years of harm that has been caused to mortgage prisoners. For the past 25 years, the UK mortgage market has been dominated by short-term deals. Customers access a preferential rate for two years or five years and then move on to a higher standard variable rate. Those with active lenders can quickly and easily move to another short-term deal with their existing lender or switch to a different lender.

After the financial crisis, the FCA tightened the mortgage affordability rules. This was the correct response, but it created thousands of mortgage prisoners. If they tried to switch to a lower rate with a different lender, even if they were up to date with their payments, they would be told that they did not pass the new test and could not afford to pay a lower monthly rate. I emphasise that they were told that they could not now afford to pay a monthly amount that was significantly smaller than the one they were in fact paying.

Mortgage prisoners ended up stuck on a high standard variable rate, which is now between 8% and 9%, around four percentage points above what customers who could access fixed rates from active lenders were paying. This created two problems for mortgage prisoners. They are paying high rates, and so are more likely to struggle to make their payments, and they have no way of gaining certainty over their mortgage payments for the next two or five years.

The largest group of mortgage prisoners are former Northern Rock customers. After nationalisation in 2007, they were placed in a government-owned company run by UK Asset Resolution. When returning these mortgages to the private sector, the Conservative Government could have sold these mortgages to active lenders who would offer them a fair deal. However, the Conservative Government did not do that. They sold the mortgages on to non-active lenders and vulture funds, with the consequences which we now see. It is not as though the Government had not been warned about the problem. The risk to the customers was clearly identified.

In January 2016, the noble Lord, Lord McFall, wrote to the Treasury, UKAR and the FCA, highlighting that:

“Many of … those affected by these sales, will be mortgage prisoners and will be unable to switch lenders”.


He told the Government that the customers affected by these sales should be protected, offered a fair deal and given access to fixed rates. He warned that:

“Given the prospect of rising interest rates it is important that all mortgage customers are given the opportunity to achieve certainty over their payments by accessing a fixed rate”.


He told the Government that he was

“concerned that some customers affected by these mortgages sales … will not be offered reasonable fixed mortgage rates”.

UKAR responded that returning these mortgages to the private sector will mean that there will be

“the option to be offered new deals, extra lending and fixed rates should become available”.

However, this requirement was not written into the contract when mortgages were sold to vulture fund Cerberus. The BBC has reported that UKAR now claims to have been misled by Cerberus. A UKAR spokesman told the BBC’s “Panorama” that Cerberus had the ability to lend to the former Northern Rock customers and that UKAR believed that Cerberus intended to do so. It said:

“The reply to Lord McFall sent on behalf of the UKAR board of directors was based on information presented to UKAR and the board had no reason to disbelieve this at that time”.


However, the UKAR board did not put these terms into the contract of sale. The mortgage customers were left unprotected by UKAR’s incompetence, naivety and neglect.

Consumer champion Martin Lewis lays responsibility for the treatment of mortgage prisoners with the Government. He said that the Government

“have sold these loans to professional debt buyers who do not offer mortgages and left these people in these types of mortgages, which have been too expensive, crippled their finances and destroyed their wellbeing”.

It was at best very naive of the Government and UK Asset Resolution to think that a vague aspiration from a vulture fund such as Cerberus was sufficient.

Everyone must now acknowledge that the Conservative Government failed to protect these mortgage prisoners. They could have sold them to active lenders, but they chose instead to sell them to unregulated vulture funds. We need to understand why the Conservative Government made these decisions and why they ignored the risks, and we need to understand the ultimate impact on mortgage prisoners. The inquiry proposed by this Bill would examine the circumstances around the sale and the role of the Treasury and UKAR.

FCA supervision and policy also contributed to the harm caused to mortgage prisoners by trapping them within their existing lender but failing to intervene to ensure that they were treated fairly. In 2019, after years of inaction, the FCA finally introduced a modified affordability test, which enabled lenders to use a more proportionate affordability assessment when offering new mortgages to mortgage prisoners, but this did not work. The FCA found that

“Lenders have had a limited appetite”


for helping mortgage prisoners to switch, using the modified affordability test. In fact, only 200 mortgage prisoners were able to use this escape route.

There is also no evidence that the introduction of the consumer duty has had any benefits for mortgage prisoners. The FCA says that it has done all that it can with its existing powers, but it has not helped. For example, it allowed TSB to penalise the mortgage prisoners in its Whistletree brand by offering them higher rates than those offered to other TSB customers. I have contacted the Serious Fraud Office asking for an investigation into the actions of part of the Co-operative Banking Group: when it increased the SVR, it appears to have misled customers about an increase in the funding costs of their mortgage.

I now turn to the question of the regulatory perimeter. In 2009, the previous Labour Government proposed expanding the regulatory perimeter to include the new activity of managing a mortgage. They had identified the risk of mortgages being sold to unregulated firms such as hedge funds and private equity firms, and that this had the potential to cause detriment to borrowers. Andrew Bailey, now Governor of the Bank of England, told the Treasury Committee in 2020 that there was a population of mortgage prisoners who would not benefit from the FCA’s proposals and that expanding the FCA’s regulatory perimeter was the only way that the regulator could conclusively address the question of mortgage prisoners. He was right. However, after Mr Bailey left the FCA, the regulator had a change of heart and claimed that there was no need to expand the perimeter. The Conservative Government also rejected the proposal of the APPG on Mortgage Prisoners to expand the perimeter.

An inquiry is urgently needed, as the situation of mortgage prisoners gets worse every month. After the failed mini-Budget and the rise of interest rates, mortgage prisoners are now paying rates of between 8% and 9%. The campaign group UK Mortgage Prisoners has told me that firms such as Landmark, Rooftop and Heliodor have been quick to seek repossession orders.

Data from the FCA suggests that you are around 10 times more likely to be repossessed if you are a mortgage prisoner. This campaign group has dealt with many harrowing cases of suicide, or attempted suicide, mortgage prisoners struggling to eat or heat their homes, the children of mortgage prisoners suffering and mortgage prisoners with cancer enduring miserable final years while they wait for help. The inquiry will review and assess the level of harm caused to mortgage prisoners. No fault should be attached to mortgage prisoners themselves. They took out a mortgage with a fully regulated high street bank and found their mortgages transferred to inactive lenders and unregulated entities, which did not have to treat them fairly.

The LSE report on the situation is perfectly clear when it says:

“The borrowers themselves were not to blame”.


Martin Lewis has said:

“Mortgage prisoners have been left paying obscene interest rates for over a decade, through no fault of their own”


The inquiry will have the power to propose solutions to help current mortgage prisoners and prevent future generations of them being created. The LSE report, which was funded generously by Martin Lewis, put forward a number of solutions, including greater access to advice and government loans and guarantees along the lines of the Help to Buy scheme. The APPG on Mortgage Prisoners also put forward solutions, such as capping SVRs and an entitlement for all mortgage prisoners to access fixed rates, as well as changes to the FCA guidance concerning interest-only mortgages.

The Labour Party voted for this cap in your Lordships’ House and the Bill was amended accordingly. The amendment was removed by the Tories in the Commons. Despite having numerous meetings with several Ministers and Economic Secretaries over the 16 months leading up to the election, the Conservative Government did not provide Martin Lewis with a full response to his LSE report or the other solutions put forward by the APPG.

The excellent Library briefing for this debate notes that Martin Lewis wrote to the Chancellor in July

“asking for the new government to respond to the LSE reports”.

It quotes him as saying that

“the ‘financial, mental and physical toll on those trapped’ as mortgage prisoners had led to ‘repossessions, hardship and, terribly, suicide’. At the time of writing”—

six months on—

“the government has not publicly responded to the letter”.

I hope the Minister will tell us when the Government will respond substantively to the LSE report.

We need an inquiry so we can allocate responsibility and examine mistakes within government and regulators that caused the very bad situation for thousands of mortgage prisoners. We need an inquiry to identify and correct the failures of the regulators and correct any miscarriages of justice which have occurred. Most of all, we need an inquiry to develop and implement solutions to help the current generation of mortgage prisoners stay in their homes and stop them being exploited by vulture funds. I beg to move.

--- Later in debate ---

[Lord Sharkey (LD)]

My Lords, I thank everybody who has spoken so very powerfully about the plight of the mortgage prisoners. It is important to make one point about the mortgage prisoners: they are like everybody else in every other respect. They are not a delinquent or feckless part of society. They are not reckless. What befell them could have happened to a holder of a mortgage from any company that suffered the kind of damage that Northern Rock did during the crisis. No special characteristics of the mortgage prisoners somehow make them worthy of less attention or of getting worse deals.

I also note that the noble Lord, Lord Altrincham, did not entirely rule out a cap on SVRs. That is encouraging and perhaps the precursor to a longer situation.

I also acknowledge the Minister’s invitation to remain involved with discussions about the plight of mortgage prisoners. This is an ongoing, terrible situation, and I do not think anybody disagrees with that. Before I get to the real question that arises from this, I should ask again when we can expect a reply to Martin Lewis’s letter to the Chancellor. I am prepared to give way if the noble Lord will tell me immediately.

[Lord Livermore (Lab)]

As I tried to indicate in my remarks, we will continue to engage and look at that report, but I cannot guarantee a reply on any particular timescale.

[Lord Sharkey (LD)]

I close by reminding everybody that this is a current situation. Lots of people are suffering very badly indeed because of it, and it is not getting any better. So I close with Lenin’s favourite question: what is to be done? I beg to move.

Bill read a second time and committed to a Committee of the Whole House.