Mortgage Prisoners

Alison Thewliss Excerpts

Thursday 6th June 2019 Commons Chamber

[Alison Thewliss (Glasgow Central) (SNP)]

I thank the hon. Member for Stirling (Stephen Kerr) for setting out the situation that so many people face, with no recourse in the system. One of the first cases that I took on as an MP and, I regret, was unable to resolve was that of a former Northern Rock mortgage holder. It was incredibly difficult to get anywhere with the case, because I hit a wall all the way through it. That seems to have been the experience of many Members who have spoken today. The Government must look urgently at that lack of any means to resolve the situation, because without any recourse, nobody will be able to get out of this situation and get their lives back on track.

I pay tribute to the hon. Members for Dover (Charlie Elphicke) and for East Lothian (Martin Whitfield) for bringing this debate to the Chamber and to all those who have contributed. I note the work of the Treasury Committee, which I will be joining soon; its members can look forward to that. The APPGs on fair business banking and on mortgage prisoners have also done a huge amount of work in this area.

The examples given by the hon. Member for Dover show the scandal of this situation, the deep and real web that has been created and the need for the Government to act. There is no doubt that irresponsible borrowing occurred in the early 2000s, with people taking out loans that they could hardly afford. The starkest example of mortgage prisoners is those who were let down during the 2008 financial crash, but we cannot forget the role of the banks, which offered people higher and higher loans with fewer checks and balances and led customers into a sense of security that nothing could go wrong. The hon. Member for Thirsk and Malton (Kevin Hollinrake) set out how those who caused that problem began to compound the issue further down the line.

One hundred per cent. loan-to-value mortgages were not unusual, and sometimes even higher value loans were offered for home improvements or debt consolidation, which seems unthinkable now, knowing what we know in a post-2008 landscape. A primary example was Northern Rock’s Together mortgage, which was offered to customers covering between 95% and 125% of the value of their home. When the regulations were tightened after the crash, many people were trapped with higher loans and higher-than-average interest rate payments. The self-same banks that lent them higher amounts than they could afford then refused to give them smaller loans because they failed the lending criteria for borrowing.

Those people were forced to keep their current mortgage and to pay lenders the standard variable rate, which was between 2% and 5% higher they would have paid on a market-leading mortgage. This does not sound like a high percentage, but even if people took out a mortgage of £100,000—much lower than the UK average, including in Scotland—in 2008 before the crash, it is conceivable that they could have paid between £2,000 and £5,000 a year on top of what they would have paid on a normal competitive-rate mortgage. Over 11 years, a bank could have been paid between £22,000 and £55,000 more by exactly the same customers who were told that they could not afford a cheaper mortgage. The hon. Member for Bethnal Green and Bow (Rushanara Ali) laid that out quite well. Even on the most conservative estimates, we are dealing with substantial and possibly life-changing amounts of money, which could have gone some way to paying off the balance of a mortgage.

It is clear that this lack of access to competitive financial products is bad for individual customers, but there is clearly also a wider negative macroeconomic effect. Hon. Members have mentioned the issues for business customers as well. Businesses going bust is of course bad for the economy, but businesses being forced to go bust is an even wider concern. The hon. Member for Camborne and Redruth (George Eustice) mentioned commercial repossessions, and it is a really deep worry that those in the commercial sector do not have the same rights as those in the consumer sector.

The hon. Member for Thirsk and Malton talked about what is fair and reasonable, and the gaps in business lending. The Government really ought to look into closing these gaps and loopholes to give business customers the reassurance that, when they want to take out a loan, they will not lose everything. The risk of losing everything, as so many people have done in these circumstances, does not give people the confidence to start up small businesses, and it will put others off. It has certainly had a life-changing impact on those who have suffered as a result so far.

When interest rates were slashed to 0.5% by the Bank of England in the aftermath of the 2008 crash to encourage borrowing, the effect this mechanism had on the wider economy was hampered by banks not passing on the cuts in interest rates to their customers. The economy could have been a bit more resilient if the economic levers were able to work in the way intended, so it is vital that we correct this for the future of our economy and make sure that such gaps do not emerge should this ever happen again.

The regulatory tightening following the financial crash is of course to be welcomed and the mortgage credit directive’s affordability checks protect the market from irresponsible lending, but we should not throw the baby out with the bathwater. Regulation should provide a framework for improving consumers’ experiences and for increasing competition in the market, not tying consumers to one onerous regime of payments.

The FCA has committed to changing its interpretation of the mortgage credit directive to a relative test rather than an absolute one, which will be helpful and is to be welcomed. However, as others have mentioned, its own analysis suggests that this help will be extended to only 20,000 of the at least 150,000 people who have been identified. I understand that some lenders are outwith the regulatory remit of the FCA, and the Government should be looking at extending its remit so it is better able to address this issue. The phenomenon of mortgage prisoners has been wrongly looked on as a legacy issue, but it actually provides a very real threat for the future.

The UK Government must change regulations to stop vulture firms exploiting people to make a quick profit. The regulatory framework at present means that, instead of being able to switch to a better deal, UK mortgage prisoners had their loans sold to vulture firms looking to make such a profit. As hon. Members have mentioned, that has had a very real impact on those trapped within that system, and it is of course the customers who lose out. These firms pack up, move on and do something else, in a very shady way quite often. As Members have said, the practice in relation to SME loans has also forced many into bankruptcy. My hon. and learned Friend the Member for Edinburgh South West (Joanna Cherry) has on a number of occasions raised the cases of her constituents who have been affected.

As we have heard, many of the mortgages have been sold to a subsidiary of the US equity firm Cerberus, Landmark Mortgages. The BBC website states:

“BBC Panorama has discovered Cerberus told the government it was planning to offer homeowners better mortgage deals before its £13bn purchase of former Northern Rock mortgages in 2016. But the company hasn’t provided any new mortgages and 65,000 homeowners are still trapped on high interest rates.”

Cerberus denies that allegation, but it seems pretty clear from the evidence given that that is exactly what took place.

The hon. Member for Hazel Grove (Mr Wragg) laid out well the difficulties faced by his constituents in getting justice through legal aid and other means. This is not a criminal issue, but it is within the civil court system and there is a problem getting any redress—that goes to the other point raised about redress within the system. If someone cannot get legal aid for this issue, and they have no money because they have become bankrupt as a result of the system, how can they go about seeking justice?

The SNP agrees with the all-party group on fair business banking and finance that:

“The practice of selling mortgage books to lenders who are unregulated and/or do not offer new business ought to be stopped.”

We also support its demand for an independent tribunal service, so that customers who have been treated unfairly by Cerberus, or any other firm, can more easily secure the service they deserve—particularly giving recourse to support in cases where people have been subject to the strong-arm tactics described by hon. Members.

Mortgage prisoners are not a phenomenon that is restricted to the 2008 era, and there are a growing number of mortgage prisoners today. With house prices increasing faster than wage growth, there is a trend of creeping back towards those higher loan-to-value mortgages in the market, which is storing up problems for the future. We must learn from the mistakes made in 2008, and stop that in its tracks before more people become trapped.

As well as taking regulatory steps to free mortgage prisoners who are currently in a difficult situation, action must be taken to ensure that existing mortgage customers do not find themselves in a similar position. Tesco Bank, which has substantial operations in my constituency, recently announced its intention to sell its mortgage portfolio, citing “challenging market conditions” that have constrained its opportunities to grow profitably. I was happy to sign a letter that was organised by the hon. Member for Feltham and Heston (Seema Malhotra), but in its response Tesco gave no real concrete assurances that those mortgages will be sold to active lenders, and said that things are at an early stage. That leaves many of its customers at risk of being stuck with the same kind of deal that they cannot switch out of. We must do what we can to discourage and disincentivise companies from contributing to what is a failure in the market. I will meet representatives from Tesco Bank soon and put those concerns to them in person. I am worried for customers who currently have mortgages. Many of us in this room will have mortgages, and we cannot say for certain that the mortgages we have today will be the ones we will have tomorrow or in a few years’ time.

As we head through the chaos of Brexit, and potentially to a catastrophic no-deal scenario later in the year, the wider context could not be more serious. The livelihoods of many across these islands could be put at risk, with the inevitable strain on people’s ability to pay their mortgage and on the wider financial system. Some have predicted that a no-deal Brexit would have a similar effect to the 2008 crash, with the difference being that the UK Government appear to be hurtling towards it almost deliberately. I see no upside to putting my constituents and the remain-voting nation of Scotland at that risk by even threatening to go for no deal, never mind enthusing about it as some Tory leadership candidates have been doing.

I and my SNP colleagues have repeatedly called on the UK Government and the Minister to undertake a strategic review of the culture within the banking and financial services industry. For mortgages, the sector should focus on providing patient, long-term investment that supports the economy and promotes productivity, not just making a quick buck. The measures taken following the crash must not be unwound due either to Brexit or to other things in the economy, and we need to see what the protections will be for consumers—both businesses and private individuals. Those vultures who prey on the most vulnerable—the hon. Member for Thirsk and Malton more appropriately called them “vampires”—should be chased out of this industry once and for all.