Mortgage Prisoners

Rushanara Ali Excerpts

Thursday 6th June 2019 Commons Chamber

[Charlie Elphicke (Dover) (Con)]

I beg to move,

That this House notes that the practice of selling mortgages and unregulated commercial loans to unregulated funds has been creating mortgage prisoners, exposes businesses to asset stripping and threatens to continue to create further mortgage prisoners and risks to businesses; is concerned that mortgage prisoners are being exploited by such unregulated funds by being kept on high standard variable interest rates and therefore denied the opportunity to take advantage of historically low interest rates or fix their mortgage interest payments to gain certainty over their mortgage payments; is further concerned that businesses continue to be exposed to asset stripping; further notes that many of those unregulated funds pay little or no UK tax while depriving citizens of opportunities and in many cases their homes; believes that HM Treasury should immediately require UK Asset Resolution to cease selling mortgages to any unregulated entity; considers that HM Treasury and the Bank of England should take all possible measures to ensure that mortgage prisoners are given access to new deals and fixed interest rates, and that banks cease discriminating against mortgage prisoners by offering them less favourable mortgage terms; further considers that the Government should expand the scope of FCA regulation to include all mortgages and all unregulated purchasers of mortgages; and calls on HM Treasury and the Bank of England to hold an urgent inquiry into the sale of mortgage and commercial debt by any financial institution to any unregulated entity, with the findings of such inquiry to be published.

I thank the Backbench Business Committee for agreeing to list this important debate. A number of Members have been unable to attend because they have been detained elsewhere, and that includes the hon. Members for Feltham and Heston (Seema Malhotra) and for Burnley (Julie Cooper), the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper) and my hon. Friend the Member for Worthing West (Sir Peter Bottomley).

The reason for bringing this debate to the Chamber is that it is time for a new covenant to deliver fairness for borrowers—a deal that will set mortgage prisoners free. Who are the mortgage prisoners? They are the people who are trapped by changes in mortgage regulation. They are trapped in expensive mortgages, unable to remortgage to get a better deal. The rules say that they cannot afford payments on a mortgage of, say, 2% so they are forced to continue with a mortgage of 5% or more. It makes no sense at all. It is estimated that there are up to 200,000 mortgage prisoners in the United Kingdom today. Every one of those 200,000 families has a story to tell about how they struggle to get by, forced to keep up payments to keep a roof over their heads, often going without.

One of those is Charlotte’s family. Charlotte is 39 years old, and lives in the west midlands with her family. They took out a Northern Rock mortgage in 2007. In 2010, she had twins who suffer from a serious disability; both are wheelchair bound. The family have never missed a single mortgage payment, but they cannot remortgage due to the regulators’ affordability test—a test that came into effect after the financial crash and after she got her mortgage. She says,

“How can we not afford to pay less?”

Why does this matter to Charlotte and her family? If Charlotte had a better mortgage at a lower interest rate, she would be able to afford more therapies for her disabled children, rather than having to spend so much time crowdfunding from people whose good hearts help to provide the cash she needs to help her kids.

Charlotte is far from alone. Mr and Mrs Adams live in Bournemouth. They took out a Northern Rock mortgage in 2007 that is now owned by TSB’s Whistletree fund, to which the Treasury sold off their mortgage. Mr and Mrs Adams are trapped at a rate of 5%. TSB will not allow them to switch because it says that they are not TSB customers, but they cannot go elsewhere. They failed the regulators’ affordability tests for lower payments on their mortgage, even though they have made all their mortgage payments and their loan to value is just 62%. This has put terrible pressure on the family, causing them to suffer real illness from all the stress.

Mortgage prisoners live in fear of interest rates rising. The whole House knows that we have been living in a period during which interest rates have been very low for a very long time. That might change in the next couple of years. The whole House knows that we have seen an extended economic growth cycle—much longer than is normal—but that could also change in the next few years. That concerns Jayne, who is 50 years old.

Jayne took out a mortgage in 2007. She is on a five-year tracker at 0.5% above base rate, and her mortgage was sold to Cerberus by the Treasury. Cerberus is described in the popular press as a “hound from hell” vulture fund. Jayne is now paying nearly 5% interest on a variable rate and worries about what will happen if rates go up. She cannot go elsewhere because she is self-employed. Her income fluctuates, meaning that she fails the so-called affordability test to be able to have a new mortgage with lower payments, even though she has made all her mortgage payments and the loan to value in her case is just 50%. She is basically paying £4,000 a year more than she would be if she was not a mortgage prisoner.

These cases highlight the plight of Britain’s 200,000 mortgage prisoners, but what about the people who got them into this mess? All those I have referenced are Northern Rock customers. What has happened to Northern Rock’s old boss, Adam Applegarth? Has he been made to atone for his role in blighting the lives of thousands of people? No—not a bit of it. In fact, he got a £760,000 payoff in 2008 and is set to enjoy a £304,000 a year pension.

As I said, there are 200,000 mortgage prisoners. That number is incredibly high and threatens to become even higher. Despite the recent sales, the Treasury still holds £5.5 billion of mortgages for 35,000 customers. If these, too, are sold to unregulated funds, it could mean tens of thousands more mortgage borrowers stuck without hope of escape. On top of that, Tesco has been looking at what the Treasury has been doing and has now announced plans to sell its £3.7 million mortgage book, which would affect 23,000 customers, and it is understood that Metro Bank is considering following suit. If these books also go to unregulated funds, yet more borrowers could struggle to escape.

That is why it is important the Government now lend a helping hand, not a tin ear. The Treasury should not be selling mortgages to Cerberus or any other vulture fund without proper protection, and the regulators should be doing their bit to help free the mortgage prisoners.

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

I congratulate the hon. Gentleman on securing this debate. As he knows, those of us on the Treasury Committee have been working to get Ministers and the FCA to commit to reviewing the affordability test and changing it from an absolute test to a relative test. As he sets out very clearly, however, this is a much bigger problem that is going to affect thousands more mortgage holders, because the terms of operating for these companies is changing. The Government and the Minister should consider whether new legislation will be required to prevent these problems happening to many thousands more people under those changes.

[Charlie Elphicke]

I thank the hon. Lady for that powerful point. Like me, she is a member the Treasury Select Committee and has been pressing for us to explore this matter on the Committee in greater depth. She has been a true champion on behalf of mortgage prisoners. As the House can see, it is a subject that has crossed the political partisan divide to become an issue on which we need to work together collaboratively to provide a solution and resolution.

--- Later in debate ---

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

I congratulate the hon. Member for Dover (Charlie Elphicke), who sits on the Treasury Committee with me, and other hon. Members on securing this important debate.

There is something especially cruel about the way people have found themselves trapped in these mortgages—these much more expensive mortgages—that have already been described. They took mortgages out before the financial crisis—banks lent them the amount they borrowed—but following changes to the affordability tests they are now no longer eligible for mortgage rates that are a lot cheaper. As others have said, they are therefore trapped in more expensive mortgages that are costing them thousands of pounds a year.

These are not the super-rich or the privileged; they are decent, hard-working customers who cannot switch to a more affordable mortgage, even though they have mostly been able to pay. People who have struggled and whose homes are under the threat of repossession are those whose circumstances have changed, but despite what has been happening they have largely kept up with their mortgages, even though that is costing them tens of thousands of pounds. However, that has led to enormous hardship, as the Minister has already heard both here and in various Committees, while other representations have also been made to him and his colleagues.

As I have said, many young people who took out mortgages before the crisis are being punished because the regulations have changed. Understandably, those changes to regulations were about sorting out and learning the lessons from the financial crisis, but they have found themselves caught in the middle, unfairly and unjustly, with the unintended consequence of leaving them trapped in this situation.

As the hon. Gentleman has said, in 2016 the Government sold off £13 billion of Northern Rock mortgages to Landmark Mortgages, which is owned by the US equity company Cerberus. This represents a huge error in public policy and, as others have said, it should form part of an inquiry into what went wrong, what we need to learn from this and how we prevent these errors from affecting many thousands more people in the future.

According to a “Panorama” programme, the US firm misled Ministers and officials on mortgages. Our Government believed in the undertaking that these people would have access to mortgages and competitive rates of interest, and that that would be honoured, but it has not been. Inactive lenders, such as Cerberus and even the Government firm UK Asset Resolution, are not authorised to offer mortgage products to their customers who are stuck with high interest rates.

As has already been said, the FCA estimates that between 120,000 and 150,000 people are stuck in this predicament. Only about 10,000 people may be supported, leaving many tens of thousands more stuck. Some people have paid £40,000 more—or more—in interest than they would have done if they were on a cheaper mortgage interest rate of, say, 2%. This is desperately unfair.

There are many heart-breaking stories, and we have already heard some of them today. One of the widely reported cases was that of Lisa and Mark Elkins. They have had to pay £2,500 a month on their mortgage because their interest rate is now nearly 5%, which is three times the best rate available in the market at the time the report was provided. Lisa and Mark had to borrow tens of thousands of pounds that they would not have had to borrow had they had access to alternative, cheaper, rates. It is not acceptable for people to have to live like that when, through no fault of their own, they find themselves in that predicament.

It is concerning that the Government’s latest sell-off of NRAM mortgages was to the inactive lender Citi because—as colleagues have highlighted—they were unable to find an active lender for the deal. It is frankly irresponsible of the Government to pursue such sales, and it sets a dangerous precedent. The Government must consider this issue comprehensively and protect other consumers, as well as addressing the issues affecting current mortgage prisoners.

With other colleagues, I have raised in the Treasury Committee the plight of mortgage prisoners. The Minister probably thinks that I sound like a broken record when he appears before that Committee, but this has gone on for more than a decade. The reality is that the FCA has not acted—it has been too slow. Thanks to pressure from Members across the House, the FCA has finally stepped in to address the affordability test, and the Minister has responded reluctantly, grudgingly, gradually and in a piecemeal way that seems indicative of a number of Ministries at the moment. Perhaps Ministers are distracted by a talent show that is currently going on, but I hope this Minister will carry on working and build on what he has done so far.

I appeal to the Minister to ensure that the change in the affordability test from an absolute one to a relative one is meaningful. The danger is that the FCA will wriggle out of this—frankly, the FCA has been utterly complacent, and it should not have taken so long. The danger is that the FCA will advise banks to provide for these mortgage prisoners, but that there will be no teeth to that advice and banks will not be required to apply the affordability test as a relative test. We will still be stuck in the same position, and very little will change. Will the Minister assure the House that he will instruct the FCA to take this issue seriously and ensure that the affordability test is meaningful, rather than trying to push aside MPs who have been campaigning on this issue by giving them something that looks mildly satisfactory but does not change anything for our constituents who are suffering?

As others have said, the bigger issue at stake is the regulation of mortgage providers. The Government must look thoroughly at how thousands of people are protected, because mortgages are long-term loans. If the rules change in the middle of a long-term loan agreement, those retrospective changes make things very difficult for people and inevitably lead to a trap, and that must be understood and addressed. I hope the Minister will take this issue seriously and protect those who are currently trapped in high-cost mortgages, and that he will also look to the future and be proactive in protecting thousands of others who may find themselves at risk because of decisions that his Department and Government might have made. The Government were warned, but those warnings were not heeded. I hope they will be today.

--- Later in debate ---

[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.

[Rushanara Ali]

Will the Minister give way?

[John Glen]

No; I shall continue.

Borrowers who would like to switch lenders, who are currently up-to-date with payments and not looking to borrow more, can expect to find switching to a new, cheaper deal easier once the FCA changes are implemented later this year and are adopted by lenders. That will apply to all borrowers, regardless of whether they are with an active or inactive lender. In the meantime, those borrowers whose mortgages are sold to a purchaser that does not offer new mortgage deals will continue to be protected by the FCA principles of “treating customers fairly”.

I hope that that is a full response. I will look carefully over the points raised and write to individuals on any that have not been addressed.