Asked by: Chris Evans (Labour (Co-op) - Islwyn)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, with reference to the Financial Conduct Authority's Mortgage Prisoner Review published on 29 November 2021, what assessment he has made of the implications for his policies of the findings of that report.
Answered by John Glen - Paymaster General and Minister for the Cabinet Office
In November 2021, I laid before Parliament a review on the issue of mortgage prisoners conducted by the Financial Conduct Authority (FCA). This review found that there are 47,000 mortgage prisoners who might benefit from switching to a new mortgage deal but are considered too high risk to do so, despite being up to date with payments.
The review makes clear that the reasons mortgage prisoners are unable to switch are complex and varied, including a high proportion of interest-only mortgage borrowers with no clear repayment plan and pre-financial crisis legacy issues such as borrowers self-certifying their income on their loan applications. A comprehensive understanding of the circumstances of mortgage prisoners is therefore crucial in progressing work and the FCA’s review provides the key insight necessary to facilitate this. Following this and previous interventions to help borrowers switch, the Government is working with industry to determine if any further solutions that can be found to help mortgage prisoners.
This further work must consider the practicality of solutions and their effects on the wider mortgage market, including the resilience of firms and fairness to other borrowers. A cap on the Standard Variable Rates (SVRs) charged by inactive firms would be an unprecedented market intervention and would undermine the principle of risk-based pricing which underlies the mortgage market. It would entail risks to the financial stability of firms which would be unable to vary their rates in line with their costs of funding and would be deeply unfair to borrowers in the wider mortgage market who pay similar rates to mortgage prisoners. It is worth noting that the SVRs charged by inactive firms are in line with those paid by borrowers in the active market.
The Government continues to examine what further practical and proportionate solutions existing to help mortgage prisoners which do not pose unacceptable financial stability risks or are unfair to other borrowers in the mortgage market.
Asked by: Chris Evans (Labour (Co-op) - Islwyn)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, whether he plans to cap standard variable mortgage rates for inactive lenders to protect people who cannot move their mortgages.
Answered by John Glen - Paymaster General and Minister for the Cabinet Office
In November 2021, I laid before Parliament a review on the issue of mortgage prisoners conducted by the Financial Conduct Authority (FCA). This review found that there are 47,000 mortgage prisoners who might benefit from switching to a new mortgage deal but are considered too high risk to do so, despite being up to date with payments.
The review makes clear that the reasons mortgage prisoners are unable to switch are complex and varied, including a high proportion of interest-only mortgage borrowers with no clear repayment plan and pre-financial crisis legacy issues such as borrowers self-certifying their income on their loan applications. A comprehensive understanding of the circumstances of mortgage prisoners is therefore crucial in progressing work and the FCA’s review provides the key insight necessary to facilitate this. Following this and previous interventions to help borrowers switch, the Government is working with industry to determine if any further solutions that can be found to help mortgage prisoners.
This further work must consider the practicality of solutions and their effects on the wider mortgage market, including the resilience of firms and fairness to other borrowers. A cap on the Standard Variable Rates (SVRs) charged by inactive firms would be an unprecedented market intervention and would undermine the principle of risk-based pricing which underlies the mortgage market. It would entail risks to the financial stability of firms which would be unable to vary their rates in line with their costs of funding and would be deeply unfair to borrowers in the wider mortgage market who pay similar rates to mortgage prisoners. It is worth noting that the SVRs charged by inactive firms are in line with those paid by borrowers in the active market.
The Government continues to examine what further practical and proportionate solutions existing to help mortgage prisoners which do not pose unacceptable financial stability risks or are unfair to other borrowers in the mortgage market.
Asked by: Richard Holden (Conservative - North West Durham)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, what assessment he has made of the potential effect of trends in the level of interest rates on people who are mortgage prisoners.
Answered by John Glen - Paymaster General and Minister for the Cabinet Office
Ministers and officials meet regularly with industry, trade bodies, and regulators to understand their policies and the impact of the increased cost of living on all mortgage borrowers. I am also in regular contact with mortgage prisoner campaigners about their concerns.
The Treasury continues to work with industry to determine if there are any further solutions which would meaningfully benefit mortgage prisoners and are fair to other borrowers in the wider mortgage market, including those who are also paying variable rates.
The Government continues its efforts to support mortgage borrowers by offering Support for Mortgage Interest (SMI) loans to homeowners in receipt of an income-related benefit to help prevent repossession. Recently, the Prime Minister announced a package of homeownership measures, including changes to SMI Loans. When introduced, these changes will provide support more quickly to homeowners by reducing the qualifying period for SMI loans and remove the ‘zero earnings rule’. There is also protection in place in the courts under the Mortgage Pre-Action Protocol which stipulates that repossession should always be a last resort for lenders.
On the cost of living more broadly, the Government has introduced over £15bn of additional support, targeted particularly at those with the greatest need. This package builds on the over £22bn announced previously, with government support for the cost of living now totalling over £37bn this year. Millions of the most vulnerable households will receive at least £1,200 of one-off support in total this year to help with the cost of living.
Asked by: Nicholas Brown (Independent - Newcastle upon Tyne East)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, what support he is making available for people who are mortgage prisoners and are subject to significant payment rises.
Answered by John Glen - Paymaster General and Minister for the Cabinet Office
The Government has worked with the Financial Conduct Authority (FCA) on changes to regulation, making it possible for lenders to offer products to a greater number of mortgage prisoners. We have also put resources in place so that mortgage prisoners can understand their options better, including their ability to switch, and access advice through MoneyHelper.
The Treasury continues to work with industry to determine if there are any further solutions which would meaningfully benefit mortgage prisoners and are fair to other borrowers in the wider mortgage market, including those who are also paying variable rates.
On the cost of living more broadly, the Government has introduced over £15bn of additional support, targeted particularly at those with the greatest need. This package builds on the over £22bn announced previously, with government support for the cost of living now totalling over £37bn this year. Millions of the most vulnerable households will receive at least £1,200 of one-off support in total this year to help with the cost of living.
Asked by: Dan Jarvis (Labour - Barnsley Central)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, whether his Department has plans to support mortgage prisoners who are in negative equity paying high interest rates and wish to sell their properties.
Answered by John Glen - Paymaster General and Minister for the Cabinet Office
The Government has undertaken significant work to understand the circumstances of borrowers whose mortgages are held by inactive firms, and it has worked with the FCA to create additional options for these borrowers, including through the introduction of a Modified Affordability Assessment which allows mortgage lenders to waive the normal affordability checks for borrowers with inactive firms who meet certain criteria, such as not wishing to borrow more.
During the recent passage of the Financial Services Act, I announced that the Treasury will work with the FCA on a review of their existing data to provide further detail on the characteristics of borrowers who have mortgages with inactive firms and are unable to switch, despite being up to date with payments. The FCA will also review the effect of its recent interventions to remove regulatory barriers to switching for mortgage prisoners and will report on this by the end of November. This will include borrowers who may be in negative equity. The Treasury will use the results of this review to establish whether there are any further possible solutions that can be found for these borrowers that are practical and proportionate.
Asked by: Sarah Olney (Liberal Democrat - Richmond Park)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, if he will provide immediate financial relief to all 250,000 families in closed mortgage books.
Answered by John Glen - Paymaster General and Minister for the Cabinet Office
The Government has undertaken significant work to understand the circumstances of borrowers whose mortgages are held by inactive firms, and it has worked with the FCA to create additional options for these borrowers, including through the introduction of a Modified Affordability Assessment which allows mortgage lenders to waive the normal affordability checks for borrowers with inactive firms who meet certain criteria, such as not wishing to borrow more. It is also worth reiterating that not all of the 250,000 borrowers whose mortgages are held by inactive firms are mortgage prisoners, as the FCA estimate that around half of these borrowers already meet the normal risk appetite of lenders and so could switch to an active lender.
During the recent passage of the Financial Services Act, I announced that the Treasury will work with the FCA on a review of their existing data to provide further detail on the characteristics of borrowers who have mortgages with inactive firms and are unable to switch, despite being up to date with payments. The FCA will also review the effect of its recent interventions to remove regulatory barriers to switching for mortgage prisoners and will report on this by the end of November. The Treasury will use the results of this review to establish whether there are any further possible solutions that can be found for these borrowers that are practical and proportionate.
Asked by: Kevin Hollinrake (Conservative - Thirsk and Malton)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, what steps his Department is taking to (a) ensure vulture funds treat customers fairly; and (b) prevent the creation of mortgage prisoners through the sale of loan books to unregulated entities.
Answered by John Glen - Paymaster General and Minister for the Cabinet Office
The FCA have advised that borrowers with inactive lenders, such as UK Asset Resolution (UKAR), are no less protected, when the legal title holder is regulated, than those with active lenders. The Government is also open to extending the Financial Conduct Authority’s (FCA) regulatory perimeter, but is yet to see evidence to suggest that there are borrowers that are currently being harmed by the current regulatory regime and that would therefore be helped by extending the FCA’s remit.
All sales of UKAR loans have included robust, non-negotiable protections to ensure the continued fair treatment of customers. These have included: adherence to the FCA’s Treating Customers Fairly (TCF) principles; its Mortgages and Home Finance: Conduct of Business (MCOB) rules; recourse to the Financial Ombudsman Service (FOS); and restrictions to the changes the buyer can make to standard variable rates (SVRs) for at least 12 months after the transfer of ownership. There have also been no changes to the terms and conditions of the loans which have been sold, and sales of UKAR loans have also not negatively impacted the ability of affected customers to re-mortgage elsewhere.
The Government has worked with the FCA to provide switching options for consumers with inactive lenders and will continue to support these customers where they would see genuine benefit from switching.
Asked by: Stephanie Peacock (Labour - Barnsley East)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, what steps the Government has taken to ensure that base rate cuts are passed on by lenders to mortgage prisoners.
Answered by John Glen - Paymaster General and Minister for the Cabinet Office
The Financial Conduct Authority have written to all closed-book firms following the disruption caused by the COVID-19 pandemic, encouraging them to pass on base rate reductions in accordance with their fair treatment guidelines.
Data released in July 2020 stated that customers with inactive lenders pay on average just 0.4% more than borrowers with the same lending characteristics with active lenders. The Government is committed to helping mortgage prisoners where they will see genuine benefit and will continue to work with the Financial Conduct Authority and industry to provide switching options for borrowers with an inactive lender.
Asked by: Gill Furniss (Labour - Sheffield, Brightside and Hillsborough)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, what plans he has to cap standard variable mortgage rates for inactive lenders to protect people who cannot move their mortgages.
Answered by John Glen - Paymaster General and Minister for the Cabinet Office
Data released in July 2020 stated that customers with inactive lenders pay on average just 0.4% more than borrowers with the same lending characteristics with active lenders. In addition, the recent London School of Economics report on mortgage prisoners noted “capping SVRs at a level close to the best rate for new loans could create harm in other parts of the market, and we do not recommend it”.
The government is working closely with the Financial Conduct Authority and industry to develop switching options for mortgage consumers with inactive lenders.
Asked by: Dan Jarvis (Labour - Barnsley Central)
Question to the HM Treasury:
To ask the Chancellor of the Exchequer, what assessment he has made of the effect on the economy of introducing a cap to the Standard Variable Rates charged to closed book mortgage prisoners.
Answered by John Glen - Paymaster General and Minister for the Cabinet Office
The Financial Conduct Authority’s 2019 Mortgage Market Review found that direct price intervention was not required at this time as the current market is working well for the vast majority of borrowers. FCA data released in July 2020 stated that customers with inactive lenders pay on average just 0.4% more than borrowers with the same lending characteristics with active lenders. In addition, the recent London School of Economics report on mortgage prisoners noted “capping SVRs at a level close to the best rate for new loans could create harm in other parts of the market, and we do not recommend it”.