Mortgage Prisoners Inquiry Bill [HL]

Lord Livermore Excerpts

Friday 7th February 2025 Lords Chamber

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, it is a pleasure to speak in this debate. I begin by congratulating the noble Lord, Lord Sharkey, on his Bill and on his opening speech today. I thank him for bringing this issue to the attention of your Lordships’ House, not only through this Bill but through his campaigning over recent years.

The Government recognise the seriousness of the issue raised by this Bill—the challenge facing borrowers who have been unable to switch to a new mortgage deal despite keeping up to date with their repayments. While they constitute a small proportion of mortgage borrowers, for those affected the impact has been all too real, and I commend the noble Lord, Lord Sharkey, for his work to highlight their situation.

The Bill has one central provision; to establish a public inquiry into the events surrounding the creation of the group of borrowers commonly referred to as “mortgage prisoners”. The Bill also contains terms of reference for that inquiry. I will seek to address three key points. First, the origins of this issue, and why the Government’s assessment is that the right processes were followed in relation to this group following the financial crisis. Secondly, the case for a public inquiry and why the Government do not believe that it represents the right approach. Thirdly, support to those affected and the action the Government are now taking.

The vast majority of the borrowers we are discussing today took out mortgages under less stringent lending conditions prior to the financial crisis. Many of these mortgages were held with either Northern Rock or Bradford & Bingley, which were subsequently nationalised by the Government to protect financial stability. In 2010, they were transferred to a public body known as UK Asset Resolution, which was unable to offer new deals to borrowers because of state aid rules. Between 2014 and 2021, UK Asset Resolution sold these mortgages back to the private sector. Many were sold to so-called inactive lenders that did not offer new mortgage deals, leaving some borrowers paying costlier standard variable rate tariffs. Those borrowers were, and in some cases still are, unable to switch to another lender because they do not meet modern lending criteria. The terms of reference for the inquiry proposed by the Bill seek to investigate the process by which these mortgages were sold back to the private sector.

The Government recognise the challenges faced by these borrowers and the very real impact this process has had on them. However, our assessment is that the correct protections were put in place at the time and that all relevant Financial Conduct Authority rules were followed.

Specifically, bidders were prevented from changing a customer’s existing terms and conditions. Rules ensured that all mortgages were either administered by a Financial Conduct Authority regulated entity or made in accordance with Financial Conduct Authority regulations. Further protections were included with each subsequent sale, some of which followed recommendations from Parliament.

All types of lenders, including “active” lenders who offered new loans, were invited to take part in this process, but interest from active lenders was very limited and no viable bids were put forward in any of the sales. This likely reflects the fact that most of the loans involved were outside of most active lenders’ risk appetite following the financial crisis. The Government have studied this issue carefully but we remain of the view that no further action should have been taken at the time to encourage only active lenders to take part, particularly given the importance of delivering value for money to the taxpayer.

The Bill before your Lordships’ House proposes a statutory public inquiry to explore these issues in greater depth. The noble Lord, Lord Sharkey, has spoken powerfully about the situation faced by affected borrowers and his desire to fully understand the process which resulted in their inability to obtain a new mortgage deal. The Government understand and respect this argument. However, we believe the scrutiny provided to date has produced the necessary information in relation to these events. This includes the two reports published by the National Audit Office covering various aspects of the sales process and, separately, a Public Accounts Committee report into one of the biggest asset sales. The previous Government also provided relevant disclosures to Parliament on the completion of each sale.

The Government agree with all those who wish to see these issues fully and transparently investigated. We will continue to work with regulators and industry to ensure that the issues and specific proposals raised by the report mentioned by the noble Lord, Lord Sharkey, are properly considered. However, given the volume of information already in the public domain, we do not believe a further inquiry would provide any significantly new information or additional support to those affected.

Finally, on the support currently available to borrowers, there are protections in place for vulnerable mortgage borrowers. Financial Conduct Authority rules require firms to engage individually with their customers to provide tailored support. Lenders have been allowed to waive certain regulatory requirements when assessing whether a new mortgage deal is affordable for borrowers who are up to date with their repayments. This applies to the cohort of borrowers we have been focusing on. Mortgage lenders, including inactive firms, are also now subject to the consumer duty, which ensures that firms prioritise fair treatment and good outcomes for their customers.

I fully understand that some noble Lords wish us to go further. I assure them that we will continue to consider this issue closely by listening to those borrowers affected and engaging with regulators, the industry and other key stakeholders, including the noble Lord, Lord Sharkey, about the processes currently in place.

The Government recognise the impact felt by this group of mortgage borrowers. Their concerns have been ably highlighted by the noble Lord in this debate, as well as by other noble Lords from across the House. The Government will continue to listen carefully to their concerns and consult with others who have an interest in this issue, not least those households directly affected.

However, we are unable to support the Bill before your Lordships’ House today. Our assessment is that the correct process was followed when these mortgages were sold back to the private sector in the years after the financial crisis. We believe that the necessary information has now been put in the public domain, both as evidence submitted to Parliament by the previous Government and through other external analyses, including from the National Audit Office. Most importantly for the households affected, we are confident that significant protections are in place to protect vulnerable mortgage borrowers.

Although I appreciate this will not satisfy the noble Lord’s demands, I hope he will continue to work with the Government, as he has done throughout his campaign on this issue.

[Baroness Bennett of Manor Castle (GP)]

The noble Lord did not refer to my questions about the UK Financial Ombudsman Service. I understand that this is a new situation. Perhaps he could write to me about that.

[Lord Livermore (Lab)]

I will happily do so.

[Lord Sharkey (LD)]

My Lords, I thank everybody who has spoken so very powerfully about the plight of the mortgage prisoners. It is important to make one point about the mortgage prisoners: they are like everybody else in every other respect. They are not a delinquent or feckless part of society. They are not reckless. What befell them could have happened to a holder of a mortgage from any company that suffered the kind of damage that Northern Rock did during the crisis. No special characteristics of the mortgage prisoners somehow make them worthy of less attention or of getting worse deals.

I also note that the noble Lord, Lord Altrincham, did not entirely rule out a cap on SVRs. That is encouraging and perhaps the precursor to a longer situation.

I also acknowledge the Minister’s invitation to remain involved with discussions about the plight of mortgage prisoners. This is an ongoing, terrible situation, and I do not think anybody disagrees with that. Before I get to the real question that arises from this, I should ask again when we can expect a reply to Martin Lewis’s letter to the Chancellor. I am prepared to give way if the noble Lord will tell me immediately.

[Lord Livermore (Lab)]

As I tried to indicate in my remarks, we will continue to engage and look at that report, but I cannot guarantee a reply on any particular timescale.

[Lord Sharkey (LD)]

I close by reminding everybody that this is a current situation. Lots of people are suffering very badly indeed because of it, and it is not getting any better. So I close with Lenin’s favourite question: what is to be done? I beg to move.