Mortgage Prisoners

William Wragg Excerpts

Thursday 6th June 2019 Commons Chamber

[Mr William Wragg (Hazel Grove) (Con)]

I start by paying tribute to all those involved in the D-day landings 75 years ago today, especially remembering those who gave their lives. We and our allies will forever owe them a debt of gratitude. My constituent Alfred Barlow sadly passed away a few weeks ago, but he had hoped to be in Normandy with other veterans. I mention him particularly following the excellent speech from the hon. Member for Blackpool South (Gordon Marsden), who was a family friend of his.

Let me now turn from a debt of deep gratitude to a kind of debt that is causing harm to families across the country who are locked into uncompetitive and expensive mortgages and unable to move to other more affordable products. That may be because they are trapped by large and expensive exit fees, or—as we have heard this afternoon—because they have been told, quite perversely, that they cannot afford to move to a cheaper deal, owing to an over-rigorous application of credit-scoring or affordability checks. Many are customers with excellent track records of keeping up repayments, but they are trapped by the rigidity of the new lending criteria. Being locked into those expensive products means that they pay more than they ought to pay. That, in turn, can force them into financial hardship, and in extreme cases can lead to the loss of their homes and other assets, especially when the loan is transferred to vulture funds which seek aggressively to recover the debts.

Colleagues may have hoped that on a Back-Bench Thursday we might avoid even a mention of the European Union, but the hon. Member for East Lothian (Martin Whitfield) beat me to it. I mention the EU not with any reference to the current overarching debate, but to refer to a matter of fact. The EU mortgage credit directive is a code of conduct for mortgage firms, which we implemented in the UK in 2016. In an attempt to learn lessons from the 2008 mortgage credit crunch, rules on lenders were tightened to prevent consumers from taking out loans that they might later not be able to afford by stress-testing their ability to make repayments, even in the hypothetical event of large hikes in interest rates. In contrast to the relatively laissez-faire attitude to mortgage lending that had gone before, this was supposed to protect consumers from placing themselves in potentially precarious financial situations. However, its implementation has shown that the rules have been over-tightened, which has resulted in the creation of tens of thousands of mortgage prisoners.

As with everything, there is a general lack of agreement on whether the current rules stem inherently from the EU directive or from the UK’s implementation of it. There is also a question mark over whether the situation of mortgage prisoners is merely an unfortunate and unintended consequence which the industry is keen to rectify, or whether lenders indeed benefit from the position of customers who find themselves trapped, and may therefore have a limited appetite for reform. We have seen in other areas of financial service regulation that when debtors face distress there is always someone around to profit, and that is exactly where vulture funds come in, to pick at the remains. It is a trend that we have seen in the business banking sector too, when lenders have abused small and medium-sized enterprises to extract the maximum profit.

Like many other Members, I was contacted by several constituents before the debate, and was asked to give examples from their cases. I hope that by doing so I will highlight the human side of the story, which is often lost when we talk about market reviews and regulatory consultations. Important as those processes are to reforming the system, we must remember that behind each broken product or recalled asset is a home, and an individual or a family.

I want to mention two cases but this issue affects many more in my constituency. One gentleman from Offerton contacted me. He has a mortgage with Landmark Mortgages following the collapse of Northern Rock and was paying a fixed rate of 6% for two years, which was subsequently reduced to a variable rate of 4.7%. That is clearly quite high in the current market and he was paying a lot in mortgage repayments. I wrote to Landmark Mortgages on his behalf to ask if it would consider offering him a lower interest rate now his fixed product had ended. It declined.

Another constituent, from Hazel Grove, took out a 15-year fixed 1.25% above base rate loan secured against a portfolio of properties with the Yorkshire Bank. He placed his trust in the security of a 15-year loan. However despite his excellent credit ratings and payments being made on time and never in default he soon found himself subject to aggressive sales of further loans on higher interest rates which he felt bullied into accepting. This meant he was paying considerably more interest each month for many years until he started to struggle with the repayments. He therefore made arrangements on a number of occasions to try to refinance, but each time it was denied.

Then the bank appointed Cerberus Capital Management, a US-based private equity firm specialising in “distressed investing” to take over the loan and act in receivership. I know that some Members make more classical allusions in this Chamber than I do, but I will on this occasion indulge the House with such a reference, because Cerberus is a multi-headed dog that guards the gates of the underworld to prevent the dead from leaving; what an apt description of that company. As my constituent found to his cost, it is not in the agent’s interest to help customers, as it will lose fees, so it undermined any attempts made to resolve matters. Now my constituent has all rents from his property portfolio paid directly to the administrators and lives in constant fear that his family home—or even that of his 84-year-old mother—may be repossessed at any moment.

This is all rather similar to another issue: the treatment of small businesses by banks and the aggressive recall of loans and assets. This is an issue with which many of us are well-acquainted through the excellent work of the all-party group on fair business banking and finance, which has spent many years looking at this issue, most notably at Lloyds and the Global Restructuring Group, but it was a practice endemic across the industry.

I want to highlight a few of the similarities that are critical to this debate. The first is the apparent toothlessness of the FCA and its seeming inability or unwillingness to respond to poor practices in the market. As we saw with the business banking scandal, the FCA is slow to instigate reform, and it is not until consumer victims start piling up at its door that it takes note. It is for the Government to ensure that the FCA shows more appetite and greater urgency to protect the consumer. I welcome the current consultation on responsible lending rules and guidance, but if past experience is anything to go by I am not holding my breath that it will provide the kind of solution that customers need and deserve.

Moreover, the FCA often suggests that consumers seek redress from the ombudsmen or the courts, but that is rarely a viable option. The Financial Ombudsman Service is limited in the size of redress it can offer. For larger claims, litigation is an extremely fraught option due to the inequalities in access to justice between an individual customer and huge, often multinational, financial institutions with their armies of lawyers.

As my constituent from Hazel Grove told me:

“The bank squeezes every penny from you so you’re unable to support your family or fight for justice. The court costs of litigation are too high, therefore you’re unable to make a claim or file to protect your rights. I am unable to get legal aid as it’s a civil matter. If you try to bring a claim the banks just say to the court that they will want a cost order, and proof that you can pay the bank’s costs if you lose, which of course I can’t.”

[Bob Stewart (Beckenham) (Con)]

The FCA seems to be an organisation that either ignores people, puts us in a pending tray forever, tells us to go away or suggests we go to an ombudsman, but very rarely does it actually do its job. It is time it was sorted out.

--- Later in debate ---

[Mr Wragg]

I need elaborate no further on that excellent intervention from my hon. and gallant Friend.

The scenario I have just described is nearly a carbon copy of that of another constituent, from Romiley, who was told by the FCA to take RBS to court over his business loans. Sadly, in both instances, it is very much is a case of David versus Goliath, but without the ability to afford the slingshot.

Finally, and most crucially, I want to highlight to the House the impact that such financial struggles can have on individuals and their families, and especially on their mental health and wellbeing. The material impact of financial hardship on both mental and physical health must not be underestimated. I have to ask the Minister how we can condone parts of the financial system having such disastrous effects on people.

In conclusion, the move to reduce barriers to switching to a more affordable mortgage for consumers who are up to date with payments and not looking to borrow more, which the FCA is consulting on, is certainly a good thing. However, to my mind the issue is bigger than that. UK financial services, particularly the consumer lending sector, urgently need to start working more in the interests of the customer. We of course accept and welcome the fact that banks and lenders need to make a responsible profit in order to be sustainable as businesses, to continue to provide services, and to continue as an important cornerstone of the economy. However, with the ongoing SME business banking scandal, and with the mortgage prisoners issue now gaining profile, this profiteering to the point of greed is rapidly creating the impression that the banks are going beyond what is responsible. [Interruption.] With that, Mr Deputy Speaker, I shall heed your indications and conclude.