Financial Services Bill

Kevin Hollinrake Excerpts

Monday 26th April 2021 Commons Chamber

[John Glen]

I thank the hon. Gentleman, as ever, for his contribution. I will go on to explain the situation of the remaining 125,000 individuals who could be categorised in that way, the actions that we have taken to date and what we will continue to look for. If that category can move without Government intervention, they are not “prisoners”.

Of the remaining 125,000 who cannot switch, 70,000 are in arrears and therefore could not secure a new deal even if they were in the active market. Those borrowers need to work with their lender to agree an appropriate repayment plan. The remaining 55,000 who are with inactive lenders and are up to date with their payments but who cannot switch are paying on average only 0.4 percentage points more than similar borrowers on reversion rates with active lenders—those with similar characteristics. The reason these borrowers are unable to switch is not that their mortgage is with an inactive firm but that they do not meet the risk appetite of lenders. They may, for example, have a combination of high loan-to-values, be on interest-only mortgages with no plan for repayment, or have higher levels of unsecured debts, non-standard sources of income or poor credit history. Similar borrowers in the active market are also typically unlikely to be offered deals with new lenders.

As I have set out previously, the Government and FCA have undertaken significant work in this area to create additional options that make switching into the active market easier for some borrowers. In particular, the modified affordability assessment allows active mortgage lenders to waive the normal affordability checks for borrowers with inactive lenders who meet certain criteria—for example, not being in arrears and not wishing to borrow more.

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

I know that the problem the Minister is trying to solve is not of his making. The problem originated when the affordability rules were changed pursuant to the financial crisis. The affordability rules were waived for people with their existing lenders who wanted to move from one fixed-rate deal, when it terminated, to the next one. Those with inactive lenders who are in the same situation cannot do that because those products are simply not available. That is one of the key problems that we have not solved yet. I would appreciate his continued efforts to work with us on this particular issue.

[John Glen]

I thank my hon. Friend, who, without equal in this House, has done so much to champion mortgage prisoners. I hope he will carry on working with us as we continue to improve our understanding and the quality of the data that could underpin further interventions.

I can reaffirm to the House today that my own, and this Government’s, commitment is as strong as it ever has been to finding further solutions that do not provide false hope to borrowers, but I am afraid that amendment 8 represents neither a proportionate nor practical response on this complex issue. I will address the two sections of the amendment in turn. First, the amendment seeks to cap the standard variable rate, or SVR, that inactive firms charge borrowers. This would be an unprecedented intervention in the mortgage market and is a completely disproportionate approach when the data shows that the 55,000 borrowers to which I referred pay on average 0.4 percentage points more than similar borrowers in the active market. Such drastic Government intervention should not be undertaken lightly, as it could have significant impacts above and beyond the effect that the amendment seeks.

That cap would be deeply unfair to borrowers in the active market who are in arrears or unable to secure a new fixed-rate deal, because the cap would not include them. Let us consider two hypothetical borrowers. The first borrower took out their mortgage prior to the financial crisis when, as my hon. Friend said, there were looser affordability requirements. They borrowed, in some cases, 125% of the property’s value, avoiding the need to save a deposit. Shortly after, their lender failed and had to be nationalised. The second borrower took out their mortgage following the financial crisis, when there were stricter affordability requirements. They saved a deposit of 5% or perhaps even 10%, and then were able to buy their home. Let us say that both those borrowers lost their jobs and now work in lower-paid jobs. They live in an area where property prices have not grown as much as they would have liked. Both try to keep up with their repayments, but ultimately fall into arrears, with the result that neither can easily access new deals. Neither of those borrowers has done anything wrong, and both deserve support from their lender and the wider financial system, but the Government cannot possibly agree with the idea that one should be supported by an unprecedented market intervention of this kind, and the other not. Both adhered to the prevailing conditions at the time.

I am also concerned that any cap on standard variable rates, including one only applicable to inactive lenders, would have unintended consequences for financial stability. The London School of Economics agreed and did not recommend a cap, noting that it could cause market harm. It would restrict lenders’ ability to vary rates in line with market conditions—the ability to vary SVRs allows lenders to re-price products to reflect changes to the cost of doing business—and could therefore create risks with significant implications for financial stability.

The second part of the amendment would require new fixed-rate deals to be offered to borrowers with inactive lenders, although it is unclear how that is to be achieved. Lending remains a commercial decision based on a variety of factors and it would not be right for the Government to compel lenders to provideproducts for specific groups. If the amendment is intended to require the current holders of these mortgages to offer new products, that would require firms that do not currently have the lending expertise, systems or regulatory permissions necessary to offer new mortgage products to do so. However, in opposing the amendment, I reiterate once again my commitment to continue to find further practical and proportionate options for affected borrowers, supported by facts and evidence, as I have over the past three years. Equally, I do not want to give false assurances, or false hope, for the sake of political expediency, especially when it is likely that there is a limit to what further action the Government can take to support such borrowers.

[Kevin Hollinrake]

Could we agree a basic principle that identical borrowers—the Minister uses the example of two similar borrowers in similar situations—should be treated exactly the same? One should not be treated better than the other. Will he agree to a principle that, if a person is a UK borrower and is in the same financial situation as others, whether they are with an active lender or an inactive lender, the treatment of those individuals should be the same: the options should be the same; the deals should be the same.

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[Seema Malhotra (Feltham and Heston) (Lab/Co-op) [V]]

I start by paying tribute to Rachel Neale and the UK Mortgage Prisoners group for their incredible resilience and the way that they have worked for the last two years with the all-party parliamentary group on mortgage prisoners, which I co-chair, to help to get a pragmatic solution to the problems that we know they face. I also pay tribute to my constituent Mohammed Masood, who first brought this issue to my attention after his family’s own experience—a situation that, after so many years, is still ongoing.

I am grateful for the opportunity to speak in support of Lords amendment 8, which would provide immediate relief to up to 250,000 mortgage prisoners—the FCA’s estimate—by capping standard variable rates and ensuring that they could access fixed-rate deals. The arguments for that were made powerfully and movingly in the other place, and indeed by my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) from the Front Bench tonight.

The Minister said that he wants to be guided by the facts. I thank him for his commitment to addressing this issue, but perhaps I can share some other data and another interpretation of the same facts to show why I and others believe that the solution proposed in Lords amendment 8 would indeed be both proportionate and practical.

The 250,000 mortgage prisoners took out their mortgages prior to the financial crisis with fully regulated high street banks such as Northern Rock. They were then kept trapped on high standard variable rates before being sold to mortgage loan sharks such as Cerberus, Tulip and Heliodor. The amendment would apply a cap on the standard variable rate for mortgage prisoners with inactive lenders and unregulated entities and ensure that they can access fixed-rate deals. It would be a targeted intervention that would have no impact on the wider market of active lenders, such as the main high street banks, which compete to offer their existing customers new deals.

The margins on these Northern Rock mortgages increased significantly after the financial crisis. As interest rates available to those at active lenders fell, the Government kept mortgage prisoners on high SVRs and then sold them off to inactive lenders and vulture funds, who also kept them on high SVRs. Prior to the financial crisis, the gap between the Northern Rock SVR and the base rate was 2.09%. Since 2009, it has been 4.29% above the base rate.

When the Government sold on the loans, they gave some of the purchasers, such as Tulip Mortgages, complete discretion on interest rate policy after 12 months. Protections for later packages of mortgages sold required only that the SVR be kept at the level of the third highest of a basket of 15 SVRs, which was higher than the current rate charged to mortgage prisoners. If mortgage prisoners were entitled to new deals on the same basis as other customers, the average rate they would be paying would be 1.8% below the level of the proposed SVR cap of 2.1%.

The Minister suggested that the SVRs paid by mortgage prisoners are just 0.4% higher than SVRs at other lenders. As I said on Report, our case studies, which include nurses, teachers, members of the armed forces and small business people, tell another story. It is inappropriate to compare the rates that borrowers with inactive lenders are currently paying with those paid by SVR customers at other active lenders. If mortgage prisoners were with an active lender and up to date with payments, they would have access to a product transfer, giving them a lower fixed rate.

The Treasury has said that the amendment cannot be supported because it would not be fair to borrowers in the active market, but more than 75% of borrowers in the active market move off the SVR within six months as they are able to access a new deal. Mortgage prisoners have been stuck on high SVRs for more than 10 years. Their mortgages were sold by the Government without their consent and without the proper protections. People trapped on these high interest rates do not have much chance to reduce the amount they owe. When their mortgage finishes when they are in their 60s or 70s, these mortgage loan sharks often put pressure on them to sell and threaten to repossess their home.

The FCA and the Government claim to have helped mortgage prisoners by changing the rules on affordability tests, but there has been very slow take-up of those new flexibilities. The FCA’s cost-benefit analysis, published when the rules were proposed, estimated that somewhere between 2,000 and 14,000 mortgage prisoners would switch using the new rules. The APPG has received reports from campaign groups that only 40 mortgage prisoners have been able to switch so far.

Mortgage prisoners have been neglected for more than 10 years. Families have been destroyed and homes have been lost. While the Minister commissions yet another review, every month mortgage prisoners struggle to make their monthly payment due to high interest rates. The delays will mean that more homes will be lost. As the consumer champion Martin Lewis has said, an SVR cap on closed-book mortgages

“would provide immediate emergency relief to those most at risk of financial ruin. No one should underestimate the threat to wellbeing and even lives if this doesn’t happen, and happen soon.”

We welcome support for the amendment from Martin Lewis and from Surviving Economic Abuse.

The Government have the option of coming up with an alternative proposal to provide the relief that mortgage prisoners so desperately need. So far, they have failed to do so. That is why I hope that all colleagues will support Lords amendment 8 tonight.

[Kevin Hollinrake]

I rise to speak to amendment 8. I listened carefully to the Minister’s comments, and he has engaged across the House very frequently on this issue. I know this challenge is not of his making. It is not even of this Government’s making, but it is the responsibility of the Government of the day to solve it, because it is a problem of a Government’s making—indeed, it is of a Conservative Government’s, or coalition Government’s making. We are duty-bound to find a solution.

We have heard some very good speeches, including some very fine points about markets and intervention in markets. I am somebody who absolutely believes in markets. The markets have revolutionised my life and I have seen them revolutionise many others—how much wealth they create, how many jobs and opportunities they create, and what a great job they do for consumers in driving down prices and driving up service. But there is no market here. This is an extreme example of market failure. Inactive lenders do not set their SVRs based on recruitment of new customers, which is what should happen in a marketplace. It is not defensible to say, “We cannot intervene in this way in terms of an SVR cap because it is an intervention in markets.” The two things are not compatible.