Mortgage Prisoners

Debate between Paul Sweeney and Charlie Elphicke

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.