Mortgage Prisoners Inquiry Bill [HL]

Lord Altrincham Excerpts

2nd reading
Friday 7th February 2025 Lords Chamber

[Lord Altrincham (Con)]

My Lords, I begin by recognising the work of the noble Lord, Lord Sharkey, in bringing forward the Bill, and bringing this issue to this House on multiple occasions on behalf of thousands of families who are affected by this issue. I also commend his efforts in his role as co-chair of the APPG on Mortgage Prisoners.

I declare my recent interest as a director of the Co-operative Bank, which has been mentioned, and indirect involvement in the events of 2008 and 2009 that saw the creation of UK Asset Resolution, which in turn sold on the mortgage books that concern the Bill. The Government were able to sell on the mortgage books because UK domestic mortgages were, for the most part, very secure. So many issues flowed from the financial crisis that there can be confusion as to the source of the solvency and liquidity problems, but for the large part, domestic mortgages were well managed, with low defaults, and that includes Northern Rock, which we just heard about.

Mortgage prisoners are individuals and families unable to secure better mortgage deals due to various factors, often through no fault of their own. Indeed, many endure financial hardship and live in fear of rising interest rates. This problem arose from a mixture of poor credit quality, pricing and inertia. Typically, mortgage prisoners are unable to switch mortgages to a better deal even if they are up to date with their payments. Most mortgage prisoners have a mortgage in a closed book of an inactive firm.

These mortgage borrowers were much more likely to have got a mortgage without proof of income or with an impaired credit history. They still, even today, have relatively high loan-to-value ratios after many years of house price inflation. They often have unsecured debt as well. Many have interest-only mortgages with no repayment plan. Ultimately, they tend to have to have higher risk characteristics than borrowers with active lenders.

The problem of mortgage prisoners is well documented. Mortgage prisoners are primarily a legacy issue stemming from the 2008 financial crisis and subsequent regulatory changes. Some lenders were forced to deleverage and they sold mortgages to third parties. They were under regulatory obligation to do so. Additionally, a significant number of mortgage prisoners are tied to inactive or unregulated lenders. These lenders do not offer new mortgage products, thereby leaving borrowers with few options to escape high rates even if they have a strong payment history.

The FCA implemented stricter affordability rules under the mortgage market review of 2014. Those changes were designed to prevent reckless lending and ensure that borrowers could afford their mortgages. Although the reforms were necessary to stabilise the market and were widely thought to be an appropriate regulatory response, it is understood that they may have may have inadvertently trapped some home owners into high interest deals.

I fully acknowledge the challenges these families face and share their frustration at this very long-running situation but I do not believe that an inquiry into the events surrounding the creation of mortgage prisoners, their consequences and any other relevant matters is necessary. That does not mean that inquiries are not important in exceptional circumstances. However, in this instance, an inquiry risks delaying meaningful progress, misallocating resources and offering little in the way of new insights.

Some progress has been made. The FCA has relaxed affordability checks for mortgage prisoners, allowing lenders to assess applicants based on their payment history rather than rigid affordability criteria. Under the previous Government, in 2019, the FCA introduced modified mortgage assessment criteria in an effort to allow certain groups of mortgage holders to switch to better deals. Inactive lenders and unregulated firms had to inform their mortgage holders of the possibility of moving elsewhere.

We have emphasised the role of the FCA in resolving this issue and have publicly acknowledged the challenges faced by mortgage prisoners. There were ongoing discussions about how to how to support borrowers trapped with inactive or unregulated lenders. We explored options to transfer these mortgages to active lenders or create mechanisms that allowed borrowers to access competitive rates. While there is more work to be done, the mechanisms for addressing the problem are already in place. Launching an inquiry risks diverting attention and resources away from those practical efforts.

The noble Lord, Lord Sharkey, has in the past proposed a price cap, and that could still be a way forward, perhaps by asking the banks to agree a price for a higher rate borrower and then allow the price to be a cap on any transfer—ideally, of course, at a competitive lower price. The FCA could, again, ask companies to write to mortgage holders with good credit history to jog them into applying for a standard mortgage, because there is inertia in this problem as well.

To conclude, an inquiry may seem constructive, yet it is a lengthy process and can often take months, if not longer, to complete, and requires significant resources. We do not want to risk delaying progress. Targeted interventions can provide relief to those affected without requiring an inquiry. By focusing on practical measures, we can ensure that resources are used efficiently and effectively. The previous Government understood the difficulties faced by borrowers who are not able to switch to a new mortgage deal. We continue to work with the FCA and the sector on this issue and carefully consider practical and proportionate solutions put forward. We hope that the present Government will do the same.