Kevin Hollinrake
Main Page: Kevin Hollinrake (Conservative - Thirsk and Malton)Department Debates - View all Kevin Hollinrake's debates with the HM Treasury
Mortgage Prisoners
Kevin Hollinrake Excerpts(5 years, 6 months ago)
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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.
Bob Stewart
Mr Deputy Speaker is such a great man. I thought I was being told off earlier.
My comments will be short because I have spoken about this matter and the associated problems many times in the nine years for which I have been a Member of Parliament. Colleagues on both sides of the House are nodding. Why the heck has this matter not been sorted out? We are meant to sort these matters out—we are meant to be the people who legislate to get such injustices sorted and done. We have failed collectively to do that.
In particular, I want to raise the matter of the injustice done to my constituents—to the D’Eye family. Dean, my friend, is somewhere around, but I am not allowed to point him out. An injustice was done to him and his family by these banks. I am referring to Dunbar Bank, part of the Zurich group, and also the Royal Bank of Scotland’s Global Restructuring Group. I just cannot understand it. Decent people run these associations and they are actually—dare I use the word—screwing people utterly and completely, and it is immoral.
Kevin Hollinrake (Thirsk and Malton) (Con)
I thank you, Madam Deputy Speaker, for calling me to speak in this debate. May I first draw the House’s attention to an interest that I have in this matter, in respect of the head office of our business? The debt is owned by Promontaria, which is a division of Cerberus. It is less happy about that than I am, because it is a very low rate. Our business is not under pressure as the rate is half a per cent over base. We are suffering no financial detriment for that, but I think that it is right that I point out that connection.
It is a pleasure to follow my gallant and hon. Friend the Member for Beckenham (Bob Stewart). I was very touched by his moving words, particularly at the start of his speech. He has done a lot of fine work on this subject, and has spoken in just about every debate on it. I have spoken on this matter, too. My hon. Friend the Member for Dover (Charlie Elphicke) has also done a lot of work in bringing forward these really important issues. He has done a lot of work on the Treasury Committee and has been a great supporter of the all-party group, as has the hon. Member for Feltham and Heston (Seema Malhotra).
After listening to all the excellent contributions today, I have to ask why on earth we let them get away with it. There was unsustainable lending prior to the great financial crash—irresponsible lending to businesses and consumers. I am talking about 120% loan to value and non-status mortgages. These bankers were chasing businesses around, and upping the ante in terms of the deals that they were trying to do, particularly in commercial property. They created the conditions for the crash that followed. They started to bundle up subprime debt and selling it on. They caused the financial crash. Then they went back to these consumers and these businesses and say, “I’m sorry but your business is no longer sustainable.” But that was due to the recession—the recession that they created. They created the situation with mortgage prisoners. There are 140,000 mortgage prisoners, including tens of thousands of small and medium-sized businesses. And it is not just about the businesses themselves; it is about the lives behind those businesses. As other hon. Members have said, it is about the families and the jobs that rely on those businesses. Imagine being a business owner, as I have been for 27 years, and one day having to go back to your wife and children to explain that your business no longer exists—all you have worked for all your life. Can anybody imagine having to have that conversation? These are the conversations that the people represented by all-party parliamentary group are having to have.
McKinsey came along and said, “Here is a great idea. We’ll solve this problem by having bad banks.” But this means that the bankers are incentivised yet again—once to over-lend to businesses and consumers, and again to put these businesses inside the “bad banks”. Of course, that is all funded by the taxpayer. But there is no incentive for the banks to look after the businesses or consumers, or to nurture them through a difficult time. The incentive is simply to push them into these bad banks, and that is when we—the taxpayers—have to take over. The situation is driven purely by the banks themselves.
Andrew Bailey said himself in a letter to the Treasury Committee:
“The UK’s unique mortgage market coupled with the impact of the financial crisis has created the conditions for mortgage prisoners.”
The bankers did this from start to finish.
Not all bankers are bad, but people should be held to account when this kind of malpractice and mistreatment occurs. Yet, as far as I am aware only one bank has been fined and banned from the sector. Nobody else has been sanctioned for these issues, despite the fact that many people who are responsible are earning millions of pounds in jobs—still within the financial sector. Of course, we pay; the taxpayer pays. Mortgage prisoners and small businesses pay millions as taxpayers, and they are the people who pick up the tab.
The Treasury does fine work in many different areas and I have great regard for the Minister, but I cannot understand how we can suddenly decide to make things worse by selling the debts taken from the banks, putting them into a bad bank, putting them into UKAR and then selling that off to a vulture fund. These vulture funds really should be renamed vampire funds because vultures pick at the carcases of dead animals whereas vampires suck the blood out of things. These funds are sucking the blood out of mortgage prisoners and small businesses. Many of these mortgage prisoners are not even behind with their payments. They are still managing to keep going, despite the fact that they are paying higher interest rates, yet these vampire funds are sucking the blood out of them. These are unregulated and inactive lenders, meaning that the borrower has nowhere to go.
My constituent Mr Pearson wrote to me to say that he was with Northern Rock. He borrowed the money in good faith, and was persuaded to take out an interest-only loan. That debt was later sold on to what is now Landmark. He has moved into my constituency but his property is in Dewsbury, and Landmark says, “No, you can’t rent that property out now.” He cannot go on a repayment mortgage, so his loan will expire in 10 years and he will have £98,000 of debts, but he has no way of dealing with the issue. He is totally locked in. How can we countenance a situation where we would allow his debt to be sold on to an unregulated entity on that basis? It is not just about money for the people in this situation. As Mr Pearson says, it is about his mental health and the stress of the situation. It is also about his life chances, because he cannot move on with his life as a consequence of the action of that institution.
We look at this stuff in such a short-term way. Okay, we might have moved a problem out of the Treasury, off the taxpayers’ books and got some money back from it, but surely the problems will return in other areas of the economy, putting pressure on public services—mental health pressures, housing benefit or other things. We take a short-term view of how we should deal with these things.
It is similar with businesses. In 2008, yes many businesses were struggling, but had we supported them through a patient capital approach over the next few years, many of those businesses would have got through the recession and would still be trading today, and jobs would have been created off the back of them. It seems we cannot take the patient capital approach we need.
Why do we not tackle our banks and hold them responsible for what they do? I have asked the Treasury and the Minister about a simple requirement on business lending for banks to treat customers fairly and reasonably in that lending relationship. No such requirement exists at the moment. Business lending is not regulated to any extent. When I ask for a simple requirement for a “fair and reasonable” test in contracts between business borrowers and banks, I am told, “No, because it might stem the flow of lending”. I simply do not accept that in any shape or form. Other countries have a better relationship between their consumers and their banks and their businesses, and their banks and their economies seem to grow fine and their business lending seems to prosper. The Government are a champion for the consumer in many areas. I would like us to be a champion for the consumer in these areas too.
We must find solutions, but whatever solutions we adopt, the banks must pay for them. Yes, there should be an obligation on lenders to provide mortgage prisoners with an alternative option. Perhaps, as the Co-operative Bank has suggested, central Government should become a lender: a centralised lender in a flexible lending environment in which mortgage prisoners can move to a better deal paid for by the banks. We should surely ban the sale of debt to unregulated and inactive lenders. I cannot imagine why we would not do that. If we think it is right to regulate mortgage lending, why would we allow that debt to be sold to an unregulated lender?
Perhaps we could regulate the interest rate that companies such as Cerberus and other entities charge consumers. That is all within our capability. The FCA has said quite clearly that these changes to the relationship are a matter for Parliament, so it is down to us to deal with it. Of course, we have moved forward in terms of a resolution scheme between banks and businesses—with the dispute resolution service—and much of that I attribute to the hard work of the Minister, but there are limitations with that. Ultimately, we believe a financial services tribunal is a much better solution, but the all-party group is engaging with that process.
Sooner or later, as has happened in Australia, we have got to push for a royal commission or public inquiry. I know the Minister thinks it would cost hundreds of millions of pounds and take years, but the royal commission in Australia took 15 months, cost £40 million and resulted in eight resignations of chief executives and chairs of big banks. The problems here are no less than the problems in Australia. We have to get to the bottom of what happened and hold people to account, but we cannot do that without a proper overarching investigation into what happened.
I will close with the regulator. As many others have said, the FCA is far too timid. It let the Royal Bank of Scotland off the hook. Phase 2 of its inquiry into RBS’s conduct was supposed to name names, but it has backed off from doing that, which is inexcusable. It is a similar story with Lloyds Bank and its disgraceful treatment of whistleblower Sally Masterton. She was discredited, constructively dismissed and prevented from working with the police in a fraud inquiry, despite being vital to that investigation. Five years later, it admits that it mistreated Sally Masterton, yet the FCA does nothing. It has not investigated that disgraceful mistreatment, and that cannot be right. I am afraid it starts with us. We must change our approach. That will change the culture of the regulator, and then we will see a change in culture in our banks.
John Glen
That is a reasonable point to make. This intervention has to be meaningful and it has to deal with the problem of mortgage prisoners. I am very clear about that, and we in the Treasury will need to look carefully at how we evaluate this. As I was saying, I see plenty of innovation across the mortgage market and I look forward to seeing what affordable options lenders can offer to mortgage prisoners who are looking to switch.
Let me turn to the Government’s sales of mortgage books to purchasers that are not active lenders. Much of this afternoon’s debate has focused on the firms that purchase these mortgage books. It is regrettable that the Government have not received any reasonable bids from active lenders, with feedback suggesting that they have limited appetite for these loans. However, I would like to make it clear to the House that the administrators of these mortgage books must be FCA-regulated, regardless of whether they are active lenders. Any consumer whose mortgage is held by one of these firms has full recourse to FCA protections, including treatment in accordance with the FCA’s “treating customers fairly” principles, and the ability to complain to the Financial Ombudsman Service.
I have heard the comments about borrowers having their reversion rates drastically increased. To safeguard against this during asset sales, the Government have put in place contractual protections that have been enhanced to ensure that the terms and conditions of the original loans are honoured and, in the latest asset sale, to ensure that future rate rises are in line with the rates charged by the largest active lenders. This means that a customer will be treated broadly the same as if their mortgage was with an active lender, with payments in accordance with their original contract terms.
Kevin Hollinrake
The FCA’s own consultation on this states that where firms sit outside the FCA’s regulatory remit, the solution is more challenging. So whatever the Minister says, the FCA believes that we will be making the situation in which a debt is sold on to an unregulated inactive lender more challenging.
John Glen
My hon. Friend made reference in his speech to the distinction between business debts and mortgage debts, but I will clarify my remarks on that specific point to him in writing.
In these sales, the Government also stipulate that there must be no financial barriers put in place to harm a consumer’s ability to switch to a new deal with another lender. Once this FCA rule change is implemented, consumers will be in a better position to change their mortgage, provided that they are up to date with their payments and meet lenders’ risk appetites.
Let me also address the point that was raised regarding the sale of commercial loan portfolios to third parties. Since the financial crisis, it has been clear that the standards of behaviour across the financial sector must improve—I have said it in all the debates that we have held in the 17 months that I have been in office—and that banks must work to restore the trust that businesses have in their institutions.
I concede that I have some differences with my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) over some of his assertions about what would be the best solution, but we have tried to work co-operatively where there is common ground, and that work is going forward. I am pleased that banks are now committed, through the standards of lending practice, to ensuring that third parties who buy loans have demonstrated that customers will be treated fairly, and to allowing customers to complain to the original lender if there is a dispute that cannot be resolved. That will help to ensure that all businesses can resolve disputes if they arise.
I thank my hon. Friend the Member for Dover for calling this debate. I have tried to address the points that have been raised. I believe it is right that the Government and the regulator introduced more stringent rules after the financial crisis. Rigorous affordability assessments are an important factor in ensuring that a borrower has the means to pay back their loan, as well as maintaining the financial stability of the UK. Unfortunately, however, a minority of borrowers have since found that they can no longer pass those strengthened affordability assessments, despite being up-to-date with their repayments. That is why the Treasury did act, and is working with the FCA to remove the regulatory barrier.
I recognise the urgency associated with securing this solution, and I am urgently working to ensure that the FCA delivers on both what it wants to deliver and what we have asked it to deliver.