Mortgage Prisoners

Paul Sweeney Excerpts

Thursday 6th June 2019 Commons Chamber

[Charlie Elphicke]

The hon. and learned Lady makes a powerful point, and a slightly separate point, if I understand her correctly. I have been talking so far about mortgage prisoners. I think she is referencing small business borrowers, which is a separate issue on which I shall also be touching in this debate. It is a very important issue, because they, too, are vulnerable customers, in many cases, and need very similar protections to mortgage prisoners.

There has been some change on the matter of mortgage prisoners. The FCA launched a consultation in March and proposed changing the mortgage affordability rules for customers who are up to date with payments, but there is a shortcoming. Its proposals only give lenders the option to apply the modified assessment. It does not propose to introduce an obligation.

It is also welcome that in July last year UK Finance, the banks’ trade association, launched a voluntary agreement under which lenders committed to supporting existing mortgage prisoners to switch to an alternative product with their present lender, but that does not help people to switch from the vulture funds, and it does not seem to help Mr and Mrs Adams escape TSB’s Whistletree fund, even though they are with the same lender. I hope that the FCA consultation will address and enforce that and make sure that people are not left in that difficult position.

How can we free the mortgage prisoners? These mortgages were taken out many years ago, back in 2007—some even before that—well before the post-crash rules came in. These borrowers have proven their ability to pay for over a decade in making their payments. Why do we have a computer-driven affordability test that ignores the reality of the real world? We have to move beyond “computer says no” to “reality says yes”. These borrowers should be treated as grandfathered as regards the regulatory rules that came in later. Banks should be obliged by the FCA to take people on and treat them as grandfathered, be they existing customers or not, and the new mortgages should be permitted without any regulatory penalty for the bank they move to.

The Treasury needs to take responsibility too. The Treasury’s UK asset resolution division has been selling off Northern Rock’s loan book to funds such as Cerberus. The instruction seems to have been to get the highest price at any price. Indeed, the head of UKAR, who is paid more than £650,000, recently boasted in The Times about how much it had managed to get for its loan books. His pay will rise to £823,000 next year if he completes the loan book sell-off. He is incentivised to achieve value for money not to consider the wider circumstances and necessary protections. I hope the Minister will address that in his remarks. There is real concern that the Government could be facilitating the creation of more mortgage prisoners.

When selling these books, the Treasury should be making sure there are the proper protections so that borrowers do not unfairly lose out. It claimed it did that in the case of Cerberus, but that turned out to have certain shortcomings—something I think the Treasury Select Committee should look into. It is wrong for the Treasury to pursue the highest amount of cash at the expense of vulnerable borrowers who have been placed in a worse position than otherwise would have been the case.

Moreover, if the Treasury is willing to sell mortgage books to vulture funds, what is to stop the likes of Tesco, Metro Bank and many others following that example? That is why we need to consider a wholesale ban on selling these mortgages to unregulated firms—full stop. The best way to achieve that is through the regulation of the whole industry. Regulating mortgages—all mortgages—will ensure that all customers are treated more fairly by mandating best practice in each and every case. That might mean that when books are sold off a little less is achieved because they cannot enjoy the fruits of regulatory arbitrage, but it will mean that vulnerable people get better protections and are more safely and carefully looked after.

There needs to be a better deal for business borrowers as well. The hon. and learned Member for Edinburgh South West (Joanna Cherry) rightly mentioned that issue just now. Business loans above £25,000 are unregulated. Time and again, we have seen the results of this—the Royal Bank of Scotland’s Global Restructuring Group, the Lloyds business support unit, and others. Small businesses are the lifeblood of our economy. We must treat them fairly so that they can focus on what they do best, which is creating jobs and making our country more successful.

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

The hon. Gentleman is making an excellent and forensic speech. He mentions Tesco Bank seeking to sell off its mortgage book. It is encouraging that since Members wrote to the bank—I understand that we have both written, as well as other colleagues—it has indicated it will look to sell it to a good lending bank, but is it not absurd that it is dependent on the good will of the bank selling the mortgage assets, rather than being copper-bottomed through regulation? We want that to be the norm, not just dependent on the bank itself.

[Charlie Elphicke]

The hon. Gentleman is absolutely right. He has long been deeply concerned about this issue, and he is right that it is better for the banks to sell to other regulated entities and that there ought to be an element of compulsion, which is why regulation needs to be considered.

The all-party group on fair business banking and finance has been looking at what can be done to protect small business borrowers. I hope that my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), the chair of the APPG, will address that point in greater detail because it is important. We need to make sure that there are protections against foreclosures and covenant-hunting through a financial services tribunal.

Capitalism is vital to the success of our economy and a cornerstone of our way of life, but it must be tempered by responsibility and fairness. We want people to work hard and enjoy success, but we will not tolerate people being taken advantage of. The purpose of this motion is to set the mortgage prisoners free, to protect small businesses from needless foreclosures, to ensure that we deliver fairness for all borrowers and recognise the massive contribution that they make to our economy, and to ensure that this country always puts the consumer interest before the corporate interest.

--- Later in debate ---

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

It is a real pleasure to be called to speak in this debate, although it is one that we regret having to have. I commend the hon. Member for Dover (Charlie Elphicke) for securing it. This is a crucial issue that must be gripped with urgency and tenacity by the Government.

Reflecting on the past decade or so, I left school at the time of the financial crash and it has been a feature of my formative years through university and in my career, but it is amazing to think that, a decade on, we are still seeing the toxic legacy of that financial banking crash playing out and blighting the lives of thousands of people across the United Kingdom. The banking system de-leveraged and tried to de-risk its structures, but there was clearly a big revenue gap for lenders, and the number of people who were taking out mortgages fell significantly. As a result, the banks sought to profit as best they could by introducing dubious programmes of selling off mortgages, moving mortgages and spreading between lender borrowing costs and the rates charged to borrowers. So it was impossible for those with standard variable rate mortgages to adjust, even though the market rate reduced substantially below it, and as a result they have been trapped in financial purgatory where they are detrimented to the tune of thousands and thousands of pounds.

It is particularly alarming to see the number of people who have worked hard, and done everything they thought was right in their lives by investing in property to build for their retirement, being faced with this significant situation. They are trying to enter a period of their lives where they can relax and enjoy their retirement, but they still face a huge burden. I am thinking in particular of one of my constituents, Diane Anderson. She retired two years ago from being a trade union official with Unison. She is now 71 years old. She re-mortgaged in 2003 with Northern Rock, but then the financial crash hit and her mortgage was repackaged and sent off to Northern Rock Asset Management—NRAM—which was in turn packaged up by the UK Government and sold to Cerberus, an American vulture fund, in 2013. She was on a 4.5% standard variable rate. As we know, people can easily buy a mortgage now for 2%—I think my mortgage rate is around 2%—so it is extraordinary that she is trapped in this situation with an interest-only repayment element of about £80,000. It expires in three years’ time, and there will still be an overhang after that. She is retired, wants to enjoy her retirement, and is still facing that huge burden, when she has been paying that mortgage for 20 years. Surely, any modicum of common sense, any appeal to sanity, would say that is a supreme injustice, which brings the regulatory environment of this country into disrepute.

I urge the Minister to take note of that case. It is representative of many thousands across the UK. It is estimated that 200,000 people in the UK are mortgage prisoners in some shape or form. It is crucial that the Government respond urgently to the situation. It is simply inappropriate for people to be found on that level of hardship. They have done everything right. The Government must provide redress. First, they should ensure that further mortgages are not sold to predatory firms that will trap people in such a way. Secondly, they should provide redress to those who are or have been trapped in this situation, which they find it extremely difficult to extract themselves from, and who have suffered a resulting detriment.

This problem has resulted from a legacy of failure of appropriate regulation in the banking system in this country. It is a monstrous evolution, or deformation, that unfurled from the financial crash, and it needs to be addressed urgently. We should be doing everything we can in this House to reduce harms in our society—in this House, we should adhere to that as a governing principle. When we identify harm brought to us by our constituents, we should immediately and forensically identify practical ways to minimise if not eliminate it. This harm has been brought to all of us, regardless of political colour, and any appeal to common sense would dictate that robust processes must be put in place to redress it.

The APPG’s recommendations are very sensible—to legislate to prevent regulated mortgage contracts in a commercial loan from being transferred to a non-regulated environment, so that in future such decisions are not left in the gift of those such as Tesco, and their sense of moral certainty, to do that in moral righteousness. We cannot be at the mercy of such boardroom decisions; it must be an overarching principle in our country, backed by legislation and by regulation.

We must introduce a new ability-to-pay system, to allow those that can to return to high-street market rates. My constituent was never in arrears; she was managing her mortgage, her mortgage was performing perfectly adequately, yet she has found herself in this situation. It is not good enough, I am afraid. There must be a better way to do this, and a better way for people to escape the clutches of Cerberus and other vulture funds. It is abominable that the Government actually sold those loans off to that sort of company without sufficient due diligence. In that situation, the Government bear liability to compensate people who have been affected. The equivalent loss of the SVR to the market rate that they could have recouped should be compensated by the Government; I would say that is a perfectly reasonable redress for those who have been trapped for so many years, and faced so much hardship and uncertainty—particularly mature people, who are looking to retire and enjoy their retirement. It is a great shame that in their later years they have been faced with such a stressful situation.

I urge the Minister to act robustly and listen to the points raised by the APPG and colleagues, who have presented their constituency cases and their broader understanding of the issue.