Financial Services Bill

Seema Malhotra Excerpts

Monday 26th April 2021 Commons Chamber

[Seema Malhotra (Feltham and Heston) (Lab/Co-op) [V]]

I start by paying tribute to Rachel Neale and the UK Mortgage Prisoners group for their incredible resilience and the way that they have worked for the last two years with the all-party parliamentary group on mortgage prisoners, which I co-chair, to help to get a pragmatic solution to the problems that we know they face. I also pay tribute to my constituent Mohammed Masood, who first brought this issue to my attention after his family’s own experience—a situation that, after so many years, is still ongoing.

I am grateful for the opportunity to speak in support of Lords amendment 8, which would provide immediate relief to up to 250,000 mortgage prisoners—the FCA’s estimate—by capping standard variable rates and ensuring that they could access fixed-rate deals. The arguments for that were made powerfully and movingly in the other place, and indeed by my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) from the Front Bench tonight.

The Minister said that he wants to be guided by the facts. I thank him for his commitment to addressing this issue, but perhaps I can share some other data and another interpretation of the same facts to show why I and others believe that the solution proposed in Lords amendment 8 would indeed be both proportionate and practical.

The 250,000 mortgage prisoners took out their mortgages prior to the financial crisis with fully regulated high street banks such as Northern Rock. They were then kept trapped on high standard variable rates before being sold to mortgage loan sharks such as Cerberus, Tulip and Heliodor. The amendment would apply a cap on the standard variable rate for mortgage prisoners with inactive lenders and unregulated entities and ensure that they can access fixed-rate deals. It would be a targeted intervention that would have no impact on the wider market of active lenders, such as the main high street banks, which compete to offer their existing customers new deals.

The margins on these Northern Rock mortgages increased significantly after the financial crisis. As interest rates available to those at active lenders fell, the Government kept mortgage prisoners on high SVRs and then sold them off to inactive lenders and vulture funds, who also kept them on high SVRs. Prior to the financial crisis, the gap between the Northern Rock SVR and the base rate was 2.09%. Since 2009, it has been 4.29% above the base rate.

When the Government sold on the loans, they gave some of the purchasers, such as Tulip Mortgages, complete discretion on interest rate policy after 12 months. Protections for later packages of mortgages sold required only that the SVR be kept at the level of the third highest of a basket of 15 SVRs, which was higher than the current rate charged to mortgage prisoners. If mortgage prisoners were entitled to new deals on the same basis as other customers, the average rate they would be paying would be 1.8% below the level of the proposed SVR cap of 2.1%.

The Minister suggested that the SVRs paid by mortgage prisoners are just 0.4% higher than SVRs at other lenders. As I said on Report, our case studies, which include nurses, teachers, members of the armed forces and small business people, tell another story. It is inappropriate to compare the rates that borrowers with inactive lenders are currently paying with those paid by SVR customers at other active lenders. If mortgage prisoners were with an active lender and up to date with payments, they would have access to a product transfer, giving them a lower fixed rate.

The Treasury has said that the amendment cannot be supported because it would not be fair to borrowers in the active market, but more than 75% of borrowers in the active market move off the SVR within six months as they are able to access a new deal. Mortgage prisoners have been stuck on high SVRs for more than 10 years. Their mortgages were sold by the Government without their consent and without the proper protections. People trapped on these high interest rates do not have much chance to reduce the amount they owe. When their mortgage finishes when they are in their 60s or 70s, these mortgage loan sharks often put pressure on them to sell and threaten to repossess their home.

The FCA and the Government claim to have helped mortgage prisoners by changing the rules on affordability tests, but there has been very slow take-up of those new flexibilities. The FCA’s cost-benefit analysis, published when the rules were proposed, estimated that somewhere between 2,000 and 14,000 mortgage prisoners would switch using the new rules. The APPG has received reports from campaign groups that only 40 mortgage prisoners have been able to switch so far.

Mortgage prisoners have been neglected for more than 10 years. Families have been destroyed and homes have been lost. While the Minister commissions yet another review, every month mortgage prisoners struggle to make their monthly payment due to high interest rates. The delays will mean that more homes will be lost. As the consumer champion Martin Lewis has said, an SVR cap on closed-book mortgages

“would provide immediate emergency relief to those most at risk of financial ruin. No one should underestimate the threat to wellbeing and even lives if this doesn’t happen, and happen soon.”

We welcome support for the amendment from Martin Lewis and from Surviving Economic Abuse.

The Government have the option of coming up with an alternative proposal to provide the relief that mortgage prisoners so desperately need. So far, they have failed to do so. That is why I hope that all colleagues will support Lords amendment 8 tonight.

[Kevin Hollinrake]

I rise to speak to amendment 8. I listened carefully to the Minister’s comments, and he has engaged across the House very frequently on this issue. I know this challenge is not of his making. It is not even of this Government’s making, but it is the responsibility of the Government of the day to solve it, because it is a problem of a Government’s making—indeed, it is of a Conservative Government’s, or coalition Government’s making. We are duty-bound to find a solution.

We have heard some very good speeches, including some very fine points about markets and intervention in markets. I am somebody who absolutely believes in markets. The markets have revolutionised my life and I have seen them revolutionise many others—how much wealth they create, how many jobs and opportunities they create, and what a great job they do for consumers in driving down prices and driving up service. But there is no market here. This is an extreme example of market failure. Inactive lenders do not set their SVRs based on recruitment of new customers, which is what should happen in a marketplace. It is not defensible to say, “We cannot intervene in this way in terms of an SVR cap because it is an intervention in markets.” The two things are not compatible.