Banking (Consumer and Small Business Protection)

Charlie Elphicke Excerpts

1st reading: House of Commons
Tuesday 7th May 2019 Commons Chamber

[Charlie Elphicke (Dover) (Con)]

I beg to move,

That leave be given to bring in a Bill to make provision to enable consumers to transfer mortgages between providers; to prohibit the sale of mortgage debt to unregulated entities and the foreclosure of certain loans; to establish financial services tribunals; and for connected purposes.

This Bill makes provision for a new covenant to deliver a fairer deal for borrowers. It seeks first to free the mortgage prisoners, secondly to protect small business borrowers, and thirdly to make provision for a new financial services tribunal.

First, who are the mortgage prisoners? They are people who are trapped by changes in mortgage regulation. They are trapped in expensive mortgages and unable to remortgage to get a better deal. The rules say that they cannot afford payments on a mortgage at, say, 2% so they are forced to continue with a mortgage paying 5% or more. It is a crazy situation. It is estimated that there are up to 200,000 mortgage prisoners in the UK today. Every one of these 200,000 families has a story of how they have struggled to get by, struggled to meet expensive payments to keep a roof over their heads.

One of those is Charlotte’s family. Charlotte is 39 years old. She and her husband live in the west midlands. They took out a Northern Rock mortgage in 2007. In 2010 she had twins who suffer from serious disabilities: both are wheelchair bound. Charlotte and her husband have never missed a single mortgage payment, but they cannot remortgage because of the regulators’ affordability test. She says:

“How can we not afford to pay less?”

Why does that matter to Charlotte and her family? She says that with a new mortgage they could pay so much less, and afford more therapies for their sick children, rather than having to fundraise.

Charlotte is far from alone. Mr and Mrs Adams live in Bournemouth in the constituency of my hon. Friend the Member for Bournemouth West (Conor Burns). They took out a Northern Rock mortgage in 2007. Now it is owned by TSB’s Whistletree fund, after the Treasury sold their mortgage off, so they are trapped on a rate of 5%. Incredibly, TSB will not let them switch as they say they are not TSB customers—something I hope TSB will reconsider. They cannot go elsewhere because they fail the regulators' affordability test to pay lower payments on their mortgage, even though they have made all their mortgage payments and their loan to value is just 62%. This has put terrible pressure on the family and the stress has caused them to be ill.

Mortgage prisoners live in fear of rates rising. Jayne, 50, took out a Northern Rock mortgage in 2007. She was on a five-year tracker mortgage 0.5% above base rate. Her mortgage has since been sold to Cerberus by the Treasury. Last weekend, an investigation in The Mail on Sunday by William Turvill described Cerberus as a “hound from hell” vulture fund. Jayne is now paying nearly 5% interest on a variable rate and worries about how she might afford the payments if rates go up. She cannot go elsewhere because she is self-employed. Her income fluctuates, meaning that she fails the “affordability” to be able to get a new mortgage with lower payments, even though she has made all her mortgage payments and the loan to value is just 50%. Her mortgage is costing some £4,000 more a year than it would if she was not a mortgage prisoner.

These cases highlight the plight of Britain’s mortgage prisoners. The Government should be lending a helping hand, not a tin ear. The Treasury should not be selling mortgages off to vulture funds like Cerberus without protection. The regulators should be doing their bit to help free the mortgage prisoners, too. There has been some change. The Financial Conduct Authority launched a consultation in March. It proposes changing the affordability test for consumers who are up to date with their payments. That sounds good, but there is a big shortcoming. The proposals outlined give lenders the option, they do not introduce the obligation.

It is also welcome that in July last year, UK Finance—the banks’ trade association—launched a voluntary agreement, in which lenders committed to support existing mortgage prisoners to switch to an alternative product at their present lender. But that does not help people switch from vulture funds, and it does not help Mr and Mrs Adams escape from TSB’s Whistletree fund, because TSB claims that they are not its customers, even though Whistletree’s own website describes it as a

“trading name of TSB Bank plc”.

I hope that TSB will reconsider.

How does this Bill seek to set free the mortgage prisoners? These mortgages were taken out many years ago—2007 and before, so well before the post-crash affordability rules and other regulatory changes came in. Yet these borrowers have proved their ability to pay for over a decade by making their mortgage payments. Why have a computer-driven affordability test that ignores the reality of the real world? We have to move past “computer says no” to “reality says yes”. These borrowers should be treated as grandfathered as regards the later regulatory rules that came in. Banks should be obliged by the FCA to take people on and treat them as grandfathered, whether they are existing customers or not, and the new mortgages should be permitted without any regulatory penalty for the bank they move to.

The Treasury needs to take responsibility, too. The Treasury has been selling Northern Rock’s loan book to funds like Cerberus. When selling these books, they should make sure that there are protections so that borrowers do not lose out. It is wrong for the Treasury to have allowed borrowers to be placed in a worse position than would otherwise have been the case.

There needs to be a fairer deal for business borrowers as well. Business loans above £25,000 are unregulated. Time and again, we have seen the results of this—RBS’s Global Restructuring Group unit, Lloyds’ Business Support Unit and the practices of funds like Cerberus. Small businesses are the lifeblood and job creators of our economy. We need to see them treated fairly, so that they can focus on what they do best—creating jobs and making our country more successful.

The all-party parliamentary group for fair business banking and finance, led by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), has campaigned tirelessly to secure a fairer deal for business borrowers. And it is badly needed because one would think that, when small businesses are making their loan payments, they must be untouchable. Yet it is all too easy to seize on a technical loan condition breach to pull the plug and foreclose. Perfectly viable, successful businesses are wrongly ended in this way. Not only are jobs lost, but the business owners all too often lose their homes and go personally bankrupt. It means that we lose entrepreneurs. Every time a small business closes, part of our economy dies.

How does this Bill protect small business borrowers? First, it would ban the practice of seizing on loan conditions. The rule should be that if a small business is paying, the lender cannot pull the plug, but it is not just about foreclosure on a technicality. There should be a greater rebalancing for small businesses to take on big banks that are trying to take advantage of them. That is why there needs to be a new financial services tribunal. Most small business borrowers cannot go to the Financial Ombudsman Service. They are too small to be able to afford expensive court battles. A new financial services tribunal would fill the gap. It is welcome that the ombudsman’s remit has been extended, yet this is not a solution as redress is limited. Moreover, unregulated entities like Cerberus are not covered. That is why we need a financial services tribunal to protect small business borrowers.

Capitalism is vital to the success of our economy and a cornerstone of our way of life. Yet as Conservatives we know that capitalism must be tempered by responsibility and fairness. We want people to work hard and to be able to enjoy success, yet we will not tolerate people being taken advantage of. That is the policy of this Bill—a Bill that seeks to set free the mortgage prisoners, to protect small business borrowers who are meeting their loan payments from foreclosure, and to make provision for a new financial services tribunal to ensure greater protection for small business. This is a Bill that seeks to forge a new covenant to deliver greater fairness for borrowers.

Question put and agreed to.

Ordered,

That Charlie Elphicke, Kevin Hollinrake, Holly Lynch, Stewart Hosie, Nicky Morgan, John Mann, David Simpson, Mr Steve Baker, Wes Streeting, Mr Simon Clarke, John Spellar and Mr Paul Sweeney present the Bill.

Charlie Elphicke accordingly presented the Bill.

Bill read the First time; to be read a Second time tomorrow, and to be printed (Bill 387).