Mortgage Prisoners

Debate between Charlie Elphicke and Rushanara Ali

Thursday 6th June 2019 Commons Chamber

[Charlie Elphicke (Dover) (Con)]

I beg to move,

That this House notes that the practice of selling mortgages and unregulated commercial loans to unregulated funds has been creating mortgage prisoners, exposes businesses to asset stripping and threatens to continue to create further mortgage prisoners and risks to businesses; is concerned that mortgage prisoners are being exploited by such unregulated funds by being kept on high standard variable interest rates and therefore denied the opportunity to take advantage of historically low interest rates or fix their mortgage interest payments to gain certainty over their mortgage payments; is further concerned that businesses continue to be exposed to asset stripping; further notes that many of those unregulated funds pay little or no UK tax while depriving citizens of opportunities and in many cases their homes; believes that HM Treasury should immediately require UK Asset Resolution to cease selling mortgages to any unregulated entity; considers that HM Treasury and the Bank of England should take all possible measures to ensure that mortgage prisoners are given access to new deals and fixed interest rates, and that banks cease discriminating against mortgage prisoners by offering them less favourable mortgage terms; further considers that the Government should expand the scope of FCA regulation to include all mortgages and all unregulated purchasers of mortgages; and calls on HM Treasury and the Bank of England to hold an urgent inquiry into the sale of mortgage and commercial debt by any financial institution to any unregulated entity, with the findings of such inquiry to be published.

I thank the Backbench Business Committee for agreeing to list this important debate. A number of Members have been unable to attend because they have been detained elsewhere, and that includes the hon. Members for Feltham and Heston (Seema Malhotra) and for Burnley (Julie Cooper), the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper) and my hon. Friend the Member for Worthing West (Sir Peter Bottomley).

The reason for bringing this debate to the Chamber is that it is time for a new covenant to deliver fairness for borrowers—a deal that will set mortgage prisoners free. Who are the mortgage prisoners? They are the people who are trapped by changes in mortgage regulation. They are trapped in expensive mortgages, unable to remortgage to get a better deal. The rules say that they cannot afford payments on a mortgage of, say, 2% so they are forced to continue with a mortgage of 5% or more. It makes no sense at all. It is estimated that there are up to 200,000 mortgage prisoners in the United Kingdom today. Every one of those 200,000 families has a story to tell about how they struggle to get by, forced to keep up payments to keep a roof over their heads, often going without.

One of those is Charlotte’s family. Charlotte is 39 years old, and lives in the west midlands with her family. They took out a Northern Rock mortgage in 2007. In 2010, she had twins who suffer from a serious disability; both are wheelchair bound. The family have never missed a single mortgage payment, but they cannot remortgage due to the regulators’ affordability test—a test that came into effect after the financial crash and after she got her mortgage. She says,

“How can we not afford to pay less?”

Why does this matter to Charlotte and her family? If Charlotte had a better mortgage at a lower interest rate, she would be able to afford more therapies for her disabled children, rather than having to spend so much time crowdfunding from people whose good hearts help to provide the cash she needs to help her kids.

Charlotte is far from alone. Mr and Mrs Adams live in Bournemouth. They took out a Northern Rock mortgage in 2007 that is now owned by TSB’s Whistletree fund, to which the Treasury sold off their mortgage. Mr and Mrs Adams are trapped at a rate of 5%. TSB will not allow them to switch because it says that they are not TSB customers, but they cannot go elsewhere. They failed the regulators’ affordability tests for 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, causing them to suffer real illness from all the stress.

Mortgage prisoners live in fear of interest rates rising. The whole House knows that we have been living in a period during which interest rates have been very low for a very long time. That might change in the next couple of years. The whole House knows that we have seen an extended economic growth cycle—much longer than is normal—but that could also change in the next few years. That concerns Jayne, who is 50 years old.

Jayne took out a mortgage in 2007. She is on a five-year tracker at 0.5% above base rate, and her mortgage was sold to Cerberus by the Treasury. Cerberus is described in the popular press as a “hound from hell” vulture fund. Jayne is now paying nearly 5% interest on a variable rate and worries about what will happen if rates go up. She cannot go elsewhere because she is self-employed. Her income fluctuates, meaning that she fails the so-called affordability test to be able to have a new mortgage with lower payments, even though she has made all her mortgage payments and the loan to value in her case is just 50%. She is basically paying £4,000 a year more than she would be if she was not a mortgage prisoner.

These cases highlight the plight of Britain’s 200,000 mortgage prisoners, but what about the people who got them into this mess? All those I have referenced are Northern Rock customers. What has happened to Northern Rock’s old boss, Adam Applegarth? Has he been made to atone for his role in blighting the lives of thousands of people? No—not a bit of it. In fact, he got a £760,000 payoff in 2008 and is set to enjoy a £304,000 a year pension.

As I said, there are 200,000 mortgage prisoners. That number is incredibly high and threatens to become even higher. Despite the recent sales, the Treasury still holds £5.5 billion of mortgages for 35,000 customers. If these, too, are sold to unregulated funds, it could mean tens of thousands more mortgage borrowers stuck without hope of escape. On top of that, Tesco has been looking at what the Treasury has been doing and has now announced plans to sell its £3.7 million mortgage book, which would affect 23,000 customers, and it is understood that Metro Bank is considering following suit. If these books also go to unregulated funds, yet more borrowers could struggle to escape.

That is why it is important the Government now lend a helping hand, not a tin ear. The Treasury should not be selling mortgages to Cerberus or any other vulture fund without proper protection, and the regulators should be doing their bit to help free the mortgage prisoners.

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

I congratulate the hon. Gentleman on securing this debate. As he knows, those of us on the Treasury Committee have been working to get Ministers and the FCA to commit to reviewing the affordability test and changing it from an absolute test to a relative test. As he sets out very clearly, however, this is a much bigger problem that is going to affect thousands more mortgage holders, because the terms of operating for these companies is changing. The Government and the Minister should consider whether new legislation will be required to prevent these problems happening to many thousands more people under those changes.

[Charlie Elphicke]

I thank the hon. Lady for that powerful point. Like me, she is a member the Treasury Select Committee and has been pressing for us to explore this matter on the Committee in greater depth. She has been a true champion on behalf of mortgage prisoners. As the House can see, it is a subject that has crossed the political partisan divide to become an issue on which we need to work together collaboratively to provide a solution and resolution.