Mortgage Prisoners Inquiry Bill [HL]

Baroness Bennett of Manor Castle Excerpts

Friday 7th February 2025 Lords Chamber

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the right reverend Prelate the Bishop of Chelmsford, who really cut to the nub of this issue and the reason for this Bill. This is a case of extreme, long-term injustice in which people suffer through absolutely no fault of their own. The fault lies with the failure of the financial sector, the regulators and the Government to take action.

The speech from the noble Earl, Earl Lytton, was particularly powerful in illustrating the way in which failures in the financial sector interact with gross failures of regulation in the building sector. Some people are almost literally being crunched in the middle between those two situations.

I commend the noble Lord, Lord Sharkey, on bringing this Bill before us and being a dedicated, long-term campaigner on behalf of mortgage prisoners; he gave us a clear explanation of the issue, which I will not repeat. I acknowledge that I have acted as a modest supporter of the noble Lord since the passages of the Financial Services Act 2021 and the Financial Services and Markets Act 2023. In that modest supporting role, I went with him to the Treasury with some of the victims affected—the mortgage prisoners themselves. I have to note that, as we heard from the noble Lord, at that meeting, we heard the testimony of just how much this has destroyed some people’s lives; indeed, we have seen some tragic cases of suicide.

However, I am afraid that what also came through from that meeting was the sense that the Treasury really did not grasp the issue. That makes a powerful case for the Bill before us today and for a public inquiry in order to get the full understanding. We have the excellent LSE/Martin Lewis report but relying on academics or on someone who is, after all, just an ordinary member of the public to explain things is really not the right place to be in this great systems failure case.

The timing of this debate is interesting. We are talking about an extreme case of abuse of consumers in the all-too-often predatory financial sector. We are seeing scandals strike again and again, and innocent consumers are the victims. It is concerning that, just yesterday, we saw the unexpected resignation of the head of the UK Financial Ombudsman Service amid what has been described as a

“major review of the consumer redress system in the financial services sector”.

The Financial Times reports that she was

“under pressure to take a less consumer-friendly approach”.

We are told that industry executives complained that she was too much on the side of consumers. The head of the consumer group Fairer Finance is quoted in the Financial Times as saying:

“It may well be that she is quitting in protest at the direction of travel … perhaps the strongest signal yet that the Treasury is serious about watering down consumer protections”.


The context of the Bill provides a real opportunity for the Minister and the Government to signal that that is indeed not the case. Accepting the Bill would be one way of sending that signal. We are, of course, in

“the fraud capital of the world”.

as the head of UK Finance said. Surely, the Government should be more concerned about the fate of consumers, given what we have heard today.

I have one final thought. An article in the Express newspaper on 22 January cited the FCA’s figure of 47,000 mortgage prisoners. The story reported that:

“The Economic Secretary to the Treasury has promised to look into these latest proposals”,


those proposals being those of the LSE and Martin Lewis. The signal here to mortgage prisoners from at least one media source is that are going to see progress; they will see genuine reaction from the Government. I can only offer my hope that we will hear something positive today for all the people who read that story and had, after so many years of suffering, a little dash of hope.

--- Later in debate ---

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, it is a pleasure to speak in this debate. I begin by congratulating the noble Lord, Lord Sharkey, on his Bill and on his opening speech today. I thank him for bringing this issue to the attention of your Lordships’ House, not only through this Bill but through his campaigning over recent years.

The Government recognise the seriousness of the issue raised by this Bill—the challenge facing borrowers who have been unable to switch to a new mortgage deal despite keeping up to date with their repayments. While they constitute a small proportion of mortgage borrowers, for those affected the impact has been all too real, and I commend the noble Lord, Lord Sharkey, for his work to highlight their situation.

The Bill has one central provision; to establish a public inquiry into the events surrounding the creation of the group of borrowers commonly referred to as “mortgage prisoners”. The Bill also contains terms of reference for that inquiry. I will seek to address three key points. First, the origins of this issue, and why the Government’s assessment is that the right processes were followed in relation to this group following the financial crisis. Secondly, the case for a public inquiry and why the Government do not believe that it represents the right approach. Thirdly, support to those affected and the action the Government are now taking.

The vast majority of the borrowers we are discussing today took out mortgages under less stringent lending conditions prior to the financial crisis. Many of these mortgages were held with either Northern Rock or Bradford & Bingley, which were subsequently nationalised by the Government to protect financial stability. In 2010, they were transferred to a public body known as UK Asset Resolution, which was unable to offer new deals to borrowers because of state aid rules. Between 2014 and 2021, UK Asset Resolution sold these mortgages back to the private sector. Many were sold to so-called inactive lenders that did not offer new mortgage deals, leaving some borrowers paying costlier standard variable rate tariffs. Those borrowers were, and in some cases still are, unable to switch to another lender because they do not meet modern lending criteria. The terms of reference for the inquiry proposed by the Bill seek to investigate the process by which these mortgages were sold back to the private sector.

The Government recognise the challenges faced by these borrowers and the very real impact this process has had on them. However, our assessment is that the correct protections were put in place at the time and that all relevant Financial Conduct Authority rules were followed.

Specifically, bidders were prevented from changing a customer’s existing terms and conditions. Rules ensured that all mortgages were either administered by a Financial Conduct Authority regulated entity or made in accordance with Financial Conduct Authority regulations. Further protections were included with each subsequent sale, some of which followed recommendations from Parliament.

All types of lenders, including “active” lenders who offered new loans, were invited to take part in this process, but interest from active lenders was very limited and no viable bids were put forward in any of the sales. This likely reflects the fact that most of the loans involved were outside of most active lenders’ risk appetite following the financial crisis. The Government have studied this issue carefully but we remain of the view that no further action should have been taken at the time to encourage only active lenders to take part, particularly given the importance of delivering value for money to the taxpayer.

The Bill before your Lordships’ House proposes a statutory public inquiry to explore these issues in greater depth. The noble Lord, Lord Sharkey, has spoken powerfully about the situation faced by affected borrowers and his desire to fully understand the process which resulted in their inability to obtain a new mortgage deal. The Government understand and respect this argument. However, we believe the scrutiny provided to date has produced the necessary information in relation to these events. This includes the two reports published by the National Audit Office covering various aspects of the sales process and, separately, a Public Accounts Committee report into one of the biggest asset sales. The previous Government also provided relevant disclosures to Parliament on the completion of each sale.

The Government agree with all those who wish to see these issues fully and transparently investigated. We will continue to work with regulators and industry to ensure that the issues and specific proposals raised by the report mentioned by the noble Lord, Lord Sharkey, are properly considered. However, given the volume of information already in the public domain, we do not believe a further inquiry would provide any significantly new information or additional support to those affected.

Finally, on the support currently available to borrowers, there are protections in place for vulnerable mortgage borrowers. Financial Conduct Authority rules require firms to engage individually with their customers to provide tailored support. Lenders have been allowed to waive certain regulatory requirements when assessing whether a new mortgage deal is affordable for borrowers who are up to date with their repayments. This applies to the cohort of borrowers we have been focusing on. Mortgage lenders, including inactive firms, are also now subject to the consumer duty, which ensures that firms prioritise fair treatment and good outcomes for their customers.

I fully understand that some noble Lords wish us to go further. I assure them that we will continue to consider this issue closely by listening to those borrowers affected and engaging with regulators, the industry and other key stakeholders, including the noble Lord, Lord Sharkey, about the processes currently in place.

The Government recognise the impact felt by this group of mortgage borrowers. Their concerns have been ably highlighted by the noble Lord in this debate, as well as by other noble Lords from across the House. The Government will continue to listen carefully to their concerns and consult with others who have an interest in this issue, not least those households directly affected.

However, we are unable to support the Bill before your Lordships’ House today. Our assessment is that the correct process was followed when these mortgages were sold back to the private sector in the years after the financial crisis. We believe that the necessary information has now been put in the public domain, both as evidence submitted to Parliament by the previous Government and through other external analyses, including from the National Audit Office. Most importantly for the households affected, we are confident that significant protections are in place to protect vulnerable mortgage borrowers.

Although I appreciate this will not satisfy the noble Lord’s demands, I hope he will continue to work with the Government, as he has done throughout his campaign on this issue.

[Baroness Bennett of Manor Castle (GP)]

The noble Lord did not refer to my questions about the UK Financial Ombudsman Service. I understand that this is a new situation. Perhaps he could write to me about that.

[Lord Livermore (Lab)]

I will happily do so.