Mortgage Prisoners Inquiry Bill [HL]

Earl of Lytton Excerpts

Friday 7th February 2025 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, I apologise to the noble Lord, Lord Sharkey, and to the House for being a few seconds late, due to a power failure on the rail network. I welcome the opportunity to participate on his Bill and I thank the noble Lord for his persistence.

Seemingly, the FCA’s response to him does not recognise his definition of mortgage prisoner. In my view, that is mere semantics, serving only to avoid addressing the problem. The key issue is whether the Government’s policies lead to circumstances that prejudice home owners as mortgagors. I support the noble Lord because it is clear that the interrelated nature of our financial and property sector is not being considered in the round. Whatever the reasons—out of scope, not a priority or too difficult—I share his view that this simply is not good enough.

The largest number of people trapped by the mortgage situation are leaseholders caught up in the building safety crisis, about which I have spoken a number of times before. Hundreds of thousands of them cannot sell or move on. Seemingly, the FCA does not recognise their existence as mortgage prisoner category. At its root, this is a combination of deregulation without effective oversight, lax enforcement without any meaningful sanctions and a propensity among developers and constructors to take the least onerous approach in a race to the bottom on quality and cost cutting, using untested construction techniques and inappropriate materials and failing to meet even the construction standards of 60 years ago.

I refer to the cases of two correspondents who have come to me recently with their accounts. The first narrowly avoided becoming a mortgage prisoner only because he was able to find an additional £10,000 to cover the tougher valuation terms of a new mortgage lender. The existing lender had proposed 70% higher monthly interest payments and a £10,000 higher arrangement fee simply for a renewal. The building is constructed using Panablok, a system for buildings up to 10 metres high, using a structural panel with a thin cementitious outer layer over a combustible inner core—a material described by some experts as “solid petroleum” such is the fuel load it presents in the event of fire. Fire risk assessments identified significant damage to parts of these panels, meaning that portions of the protective skin are missing. The system of dry lining finishes internally, which is integral to its basic fire compliance in the first place and poses an almost inevitable risk of damaging the brittle encasement layer of the panel. Accordingly, the rating of the building is significantly and adversely affected.

Under PAS 9980, I am told that it is deemed disproportionately expensive to replace the panels with a non-combustible alternative, even though a building of that height should never have been constructed with that system in the first place, because it is much higher than the 10 metres for approved use. Even worse is that the panels have a service life of about 60 years. Latent hazards and inappropriate use apart, this is a remarkably limited lifespan for a structural element in a modern residential building. Yet, this underpinned the sale of flats on 250-year leases—four times the likely economic building life. He asks me if this amounts to mis-selling. I ask the Minister the same question. High ongoing insurance costs, and the virtual impossibility of changing a mortgagee or averting any future and potentially catastrophic change in mortgagee approach to risk, seem permanent features. For other less well-funded leaseholders, it is much more serious. This is a trap which makes their home their prison.

I am afraid the second case is a sadder tale altogether. It concerns a Mr Crawford Wilson—who has allowed me to refer to him by name—who came to see me last year. He told me that in 2008, he bought an investment flat in Chelmsford built by Barratt, with a mortgage for 10 years via Mortgage Express. That provider failed in the wake of the financial crisis and was scooped up by UKAR. At the end of the mortgage term in 2018, the mortgage could not be renewed with any provider, despite his ability to make repayments, mainly because the building was found to have cladding and compartmentation issues and was thus caught up in the post-Grenfell building safety crisis. Pleas to the Levelling Up Secretary went unheeded. Repossession proceedings ensued and were effected in 2021. Hyalite, the firm to which UKAR transferred the relevant loans, eventually sold the flat in 2024 without an EWS1 certificate—which would normally be necessary for such a sale to proceed—for a forced-sale sum 43% lower than the price originally paid in 2008. Mr Wilson is now being pursued for bankruptcy for a large shortfall, a sum substantially enhanced by the generous costs of administering the debt.

I am indebted—as the noble Lord, Lord Sharkey, is—to the Library of your Lordships’ House, not only for the briefing on this Bill but for digging out the 2010 Budget Statement that included the following:

“The Government today announces its intention to integrate two of its wholly owned companies, NRAM and Bradford & Bingley plc, under a single holding company. The integrated business will be committed to providing excellent customer service”—


please note—

“leading arrears management and efficient operations. Both companies will remain as separate legal entities under the new holding company, each with its own balance sheet liabilities and government support arrangements. The Government believes this is the optimal solution to maximise value for the taxpayer and to create a solid platform for the orderly management of both companies’ mortgage books”.

There is absolutely nothing here about protecting innocent borrowers from foreseeable financial ruin. There seems to have been little understanding of the spreading contagion or assessed predictable outcomes for borrowers following the financial shock. Subsequently, the way government responded to the risks from the building safety crisis following the Grenfell fire arguably made things worse for far too many of them.

I put it to your Lordships that the case made by the noble Lord, Lord Sharkey, for a public inquiry to delve into the thinking and policies behind this whole area of mortgage lending is incontestable. Why is it that great departments of state appear to be unconcerned with the financial welfare of the citizen and apparently ignorant of the effects that their policies visit on society at large—and, for that matter, of the wider economic consequences for whole market sectors? In addition, what on any normal measure of their failure to understand, in terms of cross-departmental thinking, the consequences of other departments’ poor oversight? This does not meet the most basic functions of governance in mature and democratic nations, particularly in respect of protecting consumers and avoiding hazards. I am glad to note that this Government are committed to change from the past. Let us do this before the next disaster again leaves Ministers uselessly wringing their hands.