Mortgage Prisoners

Gordon Marsden Excerpts

Thursday 6th June 2019 Commons Chamber

[Gordon Marsden (Blackpool South) (Lab)]

Thank you very much, Mr Deputy Speaker.

It is a great pleasure and privilege to follow the hon. Member for Dover (Charlie Elphicke). I congratulate him not only on his speech here today but on the ten-minute rule Bill that he brought forward, which has given oxygen to this situation. I also pay tribute to the work of my hon. Friend the Member for Feltham and Heston (Seema Malhotra), who is unable to be here today, and of the hon. Member for Thirsk and Malton (Kevin Hollinrake), who is in his place and who, with his all-party parliamentary group, has done a great deal to take this matter forward.

This is a situation where Members are drawn into a little-known and complex subject—certainly, as far as I was concerned it was a complex subject—by the real-life experiences of constituents, and that was how I got involved. One of my constituents—I shall refer to her situation shortly—wrote to me about this. In February we had the first mortgage prisoners roundtable, if I can put it that way, in the Jubilee Room; I was there, as were other hon. Members present. They were a very mixed group of people whose lives had been shattered by the process of being mortgage prisoners for anything up to six, seven, eight or nine years. It was clear from that occasion that what the Government, and indeed the FCA, had done so far was inadequate. I subsequently met my constituent and other mortgage customers from in and around the north-west and heard their stories as well. As a result, we now have an all-party parliamentary group specifically dedicated to this issue. The hon. Member for Thirsk and Malton has also been taking it forward with his fair business banking APPG.

I also pay tribute to and thank—we do not often do this, but we should when it is required—individuals in the media. Cat McShane brought this matter to people’s attention in a “Panorama” programme. Hilary Osborne has written about it in The Guardian. William Turvill did a very lively and forensic assessment of Cerberus in The Mail on Sunday. In the other place, my right hon. Friend Lord McFall has taken a very distinct interest, given his previous honourable role in this House as Chair of the Treasury Committee.

Everything that the hon. Member for Dover said about the way in which this process has gone forward without proper due diligence is true. An estimated £9 billion of Northern Rock mortgages remain with the Treasury, and any decision on their future will inevitably affect tens of thousands of customers. In my view, taken from whatever I have been able to glean from the numerous written questions that I have put to the Treasury, there has not been proper due diligence throughout this process. I will explain later why I think that has been the case.

The proposals by the FCA that have been discussed, and will no doubt be touched on by the Minister, only give lenders the option to apply the modified assessment; they will not introduce an obligation. That is the point that we have heard regarding the situation with Tesco. There is the freedom to dine at the Ritz—to dine with responsible lenders—but this will not affect the cowboys and the vulture funds. As the figures show, they will still represent the main problem for the Government and for all the people who are involved with this matter. Other borrowers who had borrowed from now-defunct lenders found that their mortgage had been sold off to unregulated private equity firms that did not offer mortgages and so could not provide affordable deals.

Right from the beginning, this process was flawed and took little account of the position of the people we are talking about. Mortgagees with active lenders have been paying thousands of pounds more due to the ever-increasing gap between the standard value rate and the more competitive market rate. Those who now have a mortgage with an unregulated vulture fund are often forced to pay an even higher rate. This is a double whammy for constituents in places like Blackpool where there are lots of small businesses affected in the way the hon. Member for Dover mentioned, as well as ordinary residents.

Those are some of the issues that the Government need to get a handle on very urgently. A separate issue has been raised with Members of the House by the ME Group about people who were mis-sold their mortgages in the first place. It may well have a point, but that matter will have to go down the compensation route with the Financial Ombudsman Service or the FCA.

I did my best to try to get some further information out of the Government through a number of questions. One question that I posed to the Minister on 13 May was to ask

“what discussions…he and…Ministers…have had with the Financial Conduct Authority on whether Cerberus Capital Management is a fit and proper organisation to purchase mortgage loans from UK banks and his Department via UKAR.”

I must pay tribute to the industry of the person who drafted the reply, because it had eight paragraphs, but all I got was obfuscation of a very high order. The actual question was never responded to. I am afraid that the other questions that I and other hon. Members have asked have also shed more heat than light. Some of the replies that I have had seem to have a standard template that starts off by saying:

“Customers have always been protected in UKAR asset sales.”

It is fairly obvious that that is for the birds. This is another example:

“Whether to offer customers new mortgage products is a commercial decision for lenders and government does not intervene in individual cases.”

If there was ever a better definition of laissez-faire arrogance in a parliamentary question, I would like to see it. This shows that there is a clear and present danger, in market terms, that without intervention UKAR will carry on selling off NR loans to unregulated providers, and that will simply perpetuate the problem that we are all concerned about.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

In the Minister’s response to the hon. Gentleman’s question about why the loans were sold to an inactive lender, or a non-regulated entity, he said that no bids were received from an active lender. Would another option have been not to sell that debt at all, rather than to sell it to an inactive, unregulated lender that could not provide a service to the people who are subject to these loans?

[Mr Deputy Speaker (Sir Lindsay Hoyle)]

Order. I suggest that Members stick to around eight minutes, because the people who will be punished will be those like your good self, Mr Hollinrake.

[Gordon Marsden]

I absolutely agree with the hon. Gentleman, and I pay tribute to what he has done.

Many of my constituents are affected by this and have come forward with heartbreaking stories. The person I mentioned at the beginning of my speech said:

“I have worked hard to pay off just under 6k over the last few years but it is heart breaking to think I have paid over 20k more had I been able to access other products.”

Another constituent said:

“We got a Northern Rock Together mortgage literally weeks before the banking crash… The mortgage is now with… NRAM. No arrears, making the repayments has been a struggle… but we’ve always managed… we borrowed over the equity in the house and since the decline in the housing market we are in negative equity.”

This is particularly problematic in northern and midlands areas where the property market has not recovered since the crash in the way it has elsewhere.

There is a moral duty for the Government to act. It was George Osborne’s “flog it” approach to Northern Rock loans in the first place that failed to provide the safeguards for people who were then put into a transfer lottery, with horrendous results. We need to have proper movement. We need to have a formal inquiry, now that we realise the extent of this cover-up. Why were Ministers not prepared to take that forward? The contrast between the way in which the Treasury has dealt with this and how other Departments have dealt with scandals such as the Primodos scandal is deafening. The FCA’s behaviour is as much use as a chocolate fireguard, and it is time that this Government and this Minister came clean about what they are going to do in practical terms.

--- Later in debate ---

[The Economic Secretary to the Treasury (John Glen)]

I am grateful for the opportunity to speak on behalf of the Government about an issue which I know has caused widespread concern throughout the House. A range of matters have been raised in the 13 Back-Bench speeches that we have heard today. I will do my best to respond to the points that have been raised, but if I am unable to respond to all of them, I will write to the Members concerned.

I thank my hon. Friend the Member for Dover (Charlie Elphicke) for securing this important debate. He has worked tirelessly to raise awareness, both as a founder member of the all-party parliamentary group on mortgage prisoners and through his recent ten-minute rule Bill, the Banking (Consumer and Small Business Protection) Bill.

It may be helpful if I begin by briefly reminding the House of the background to this matter, and, in particular, the reasons why the Government have sought to tighten mortgage lending regulations in recent years. In the aftermath of the banking crisis, there was a consensus that the prevailing regulatory framework at that time had left UK borrowers exposed to lax lending practices, with lenders providing mortgages without adequately checking borrowers’ ability to repay them. That enabled some to secure self-certified mortgages, or mortgages with loan-to-income ratios of 120% or more.

The Government and regulators therefore substantially strengthened mortgage lending regulations to ensure that borrowers would be better protected in the future. The new regulations, resulting from the 2014 mortgage market review, require lenders to conduct thorough affordability assessments to consider evidence of customers’ income and expenditure before agreeing to a new loan. I believe that was the right thing to do. It ensures that consumers can only borrow what they can be reasonably expected to pay back, and in doing so it protects borrowers and lenders alike against future economic shocks.

A number of colleagues across the House have raised individual cases that they have encountered and meetings they have had with constituents who are looking in on proceedings today. It is undoubtedly the case that these strengthened regulations made switching to a new provider more challenging. That left some borrowers unable to switch even when they were up to date with repayments and had an unbroken repayments record. That has been mentioned a number of times in this debate.

I recognise that this is a hugely stressful and difficult situation for the individuals concerned, and it is clear to me that they face an unfair regulatory barrier. Therefore, it has been my priority as Economic Secretary to find a solution. That is why I instructed —not reluctantly or grudgingly, but determinedly and assuredly—Treasury officials to work with the FCA, which is ultimately responsible for regulations, to consider ways of helping trapped borrowers switch more easily in future. I recognise the frustration about the rapidity of the changes and I want to set out now where they are at and what we can expect in the coming weeks.

The FCA’s proposed changes will see its affordability test move from being absolute to relative. Questions have been asked about what that will mean but I cannot set that out today because the work is ongoing. However, I will say a little more about what is going to happen. It will enable lenders to accept switching consumers, providing they are up to date with repayments and are not borrowing more. The consultation for these changes will run until the end of this month and I then expect the FCA to implement these changes rapidly—later this year.

Let me give the House a practical example of the difference this will make for consumers. A borrower might have taken out a mortgage under the previous lighter touch regulations but their fixed rate deal has run its course and they are currently repaying their mortgage on a standard variable rate, in keeping with the terms of their existing mortgage contract—although I accept that these are terms that they never thought would lead to them being locked into that higher rate. If they are looking to switch to a new deal, the current affordability assessments may prevent them from doing so—and clearly they do—perhaps because the difference between their income and expenditure leaves little room for margin. However, under the new rules there will be no such regulatory barrier; instead a good repayment history can be used as the reasonable basis for a lender to offer them a new deal.

While I recognise that lenders will want to consider their commercial risk appetite to take on these borrowers, and I recognise and hear the calls from various colleagues across the House about assurances over who will provide these mortgages, I would like to take this opportunity to encourage the lenders to think hard about how they might best support those looking to remortgage to a more affordable deal. I have had conversations about that with chief executives and industry representatives in recent months and I see plenty of innovation across the mortgage market.

[Gordon Marsden]

The Minister is giving some fairly strong details about what he hopes may come out of the consultation, but that does not alter two facts. First, this will simply be an option, not an obligation. Secondly, given the track record of Cerberus, can the Minister give the House today any assurance that such companies will sign up to this?

[John Glen]

On the hon. Gentleman’s first point, the regulator is not making up these rules in isolation in an ivory tower. It is working with industry representatives to ensure that the changes it delivers will create an environment with an effective outcome. There is no point having a solution that does not solve the problem. I cannot set out the range of options that will exist, but I am confident that the work being undertaken by the FCA will lead to an effective outcome. I will come to the hon. Gentleman’s second point later when I talk about the points that he and others made about Cerberus.