Amendment 107

Financial Services and Markets Bill - Report (3rd Day) – in the House of Lords at 7:08 pm on 13 June 2023.

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Lord Sharkey:

Moved by Lord Sharkey

107: After Clause 71, insert the following new Clause—“Interest rates for mortgage prisoners(1) The Financial Services and Markets Act 2000 is amended as follows.(2) After section 137FD insert—“137FE FCA general rules: interest rate for mortgage prisoners(1) The FCA must make general rules requiring authorised persons involved in regulated mortgage lending and regulated mortgage administration to introduce a cap on the Standard Variable Rates charged to mortgage prisoners and to ensure that mortgage prisoners can access new fixed interest rate deals at an interest rate equal to or lower than an interest rate specified by the FCA.(2) In subsection (1)—“mortgage prisoner” means a consumer who cannot switch to a new mortgage deal (with a new lender or with their existing lender) and includes—(a) all 195,000 mortgages identified in CP576 Mortgage Prisoners Review, and(b) those who have a regulated mortgage contract with one of the following types of firms—(i) inactive lenders: firms authorised for mortgage lending that are no longer lending;(ii) unregulated entities: firms not authorised for mortgage lending and which contract with a regulated firm to undertake the regulated activity of mortgage administration; or(iii) closed mortgage books within larger financial groups: a closed mortgage book that is within a larger financial group but in a different entity to an active lender;“new fixed interest rate deals” means the ability for the consumer to fix the rate of interest payable on a regulated mortgage contract for periods of 2 years and 5 years with their existing lender;“Standard Variable Rate” means the reversion rate which is a variable rate of interest charged under the regulated mortgage contract after the end of any initial introductory deal.(3) The general rules made under subsection (1) must set the level of the cap on the Standard Variable Rate at a level no more than 2 percentage points above the Bank of England base rate.(4) The general rules made under subsection (1) should make new fixed interest rate deals available to mortgage prisoners who meet criteria determined by the FCA.(5) When specifying the criteria which mortgage prisoners need to meet to access the new fixed interest rate deals required by subsection (1) the FCA should take into account the criteria used by active lenders to enable their existing customers to access product transfers and ensure that similar criteria apply in the rules required by subsection (1).(6) When specifying the interest rates for new fixed interest rate deals required by subsection (1) the FCA should specify rates for a range of Loan-To-Value (LTV) ratios taking into account the average 2-year and 5-year fixed rates available to existing customers of active lenders through product transfers.(7) The FCA must ensure any rules that it is required to make as a result of subsection (1) are made not later than six months after this Act is passed.””Member’s explanatory statementThis new Clause would require the FCA to introduce a cap on the Standard Variable Rates charged to mortgage prisoners and ensure their access to fixed rate interest deals.

Photo of Lord Sharkey Lord Sharkey Liberal Democrat

My Lords, I declare an interest as co-chair of the APPG on mortgage prisoners and I thank the noble Viscount, Lord Trenchard, for adding his name to this amendment.

The amendment is similar to the one we debated in Committee: the only difference is that it gives the FCA the power to determine which mortgage prisoners may qualify for new fixed interest rate deals. The Committee amendment was more prescriptive. Its chief purpose was to allow discussion of the new Martin Lewis-funded LSE report on resolving the plight of mortgage prisoners. I said then that we would bring back the amendment on Report if no discernible progress had been made. No discernible progress has been made. The LSE report contains detailed and costed proposals and was published on 8 March this year. HMT officials were present at the launch and copies of the report were made available. When we debated the amendment in Committee on 13 March, the Minister committed to arranging an urgent meeting to discuss the report.

That urgent meeting with HMT, interested Peers, Seema Malhotra MP, researchers and representatives of the mortgage prisoners finally took place on 26 April, six weeks after the Minister had promised to arrange it. I am pretty sure that that long delay was not the fault of the Minister but simply a clear indication of the very low priority that HMT gives to the matter. In fact, the Minister had written to me to say that he was extremely disappointed that HMT had made no contact, and that his team had called for the meeting to be organised on multiple occasions and had stressed the urgency of the situation.

The Minister was absolutely right to stress the urgency. We stressed it again in our letter of 17 May to the noble Baroness, Lady Penn, asking HMT to make a full response to the LSE proposals before Report. We have had no response to the letter or to the LSE report.

Interest rates are rising significantly and the already intolerable burden on mortgage prisoners is growing steeply, increasing their misery, despair and uncertainty. HMT seems not to understand that or even to care much about it. We know that HMT officials have recently had contact with the academic authors of the LSE report. We also know that those officials told the academics that they hoped to have a response to the report before the Summer Recess. That would be five months since HMT first had sight of the report—an intolerable and unjustifiable delay and a clear indication of the low priority the Treasury is giving the matter.

The treatment of mortgage prisoners is certainly uncaring and at times almost contemptuous. Whatever the outcome of today’s debate on this amendment, I urge the Minister to galvanise the Treasury team and replace what seems to be a leisurely approach with real urgency. After all, in February 2020 the then Economic Secretary to the Treasury said in a letter to Martin Lewis:

“My officials … will take any new proposals under full consideration if they meet our strict requirements that they a) deliver value for money for government (not just individuals), b) are a fair use of taxpayer spending, and c) address any risks of moral hazard”.

The LSE report explains how its proposals satisfy those requirements. I ask the Minister to deliver urgently on John Glen’s promise.

Mortgage prisoners are not to blame for the very high SVRs that are ruining or have ruined their lives; the Government are to blame. HMT sold mortgages to vulture funds without protection for the mortgagees. It later claimed to have been misled by those funds but in fact, research funded by Martin Lewis found that the Treasury was aware of the potential problems as early as 2009, when it recognised that the sale of closed books to investors had the potential to harm borrowers. Martin Lewis’s report went on to say:

“It has subsequently become clear that many prisoners did suffer harm; our first report detailed negative effects including paying high interest rates and difficulty in remortgaging, leading in some cases to anxiety, depression, physical and mental ill health and the prospect of losing the family home”.

Interventions by the Government to date have helped at most 2,200 of the 195,000 mortgage prisoners, and in fact only 200 borrowers have been directly helped to switch as a result of the modified affordability tests run by the FCA. As things now stand, the Government and the FCA are not proposing any further action to help mortgage prisoners. All this misery and harm could have been prevented, but even now the Government still refuse to acknowledge their responsibility or to provide any help.

The amendment would provide immediate and practical support to mortgage prisoners. It would introduce a cap on the standard variable rates paid by mortgage prisoners. Capping at 2% over the base rate would return the margins to what they were prior to the financial crisis. That should stop firms exploiting their captive customers but would have no impact on the wider market.

To ensure that mortgage prisoners can gain some certainty over their mortgage payments, the amendment would also require mortgage prisoners who meet FCA criteria to be offered fixed rates. These fixed rates would vary according to the loan-to-value of the mortgage prisoner, so would be reflective of risk.

The amendment does not single out mortgage prisoners for help that is not available to other borrowers in the active market. It just ensures that mortgage prisoners are able to access fixed-rate deals on the same terms as others in the active market. It stops mortgage prisoners being exploited by vulture funds and inactive lenders and it ensures that they are treated fairly. The amendment requires the FCA to set the criteria for accessing new fixed-rate deals and interest rates based on those in the active market so that mortgage prisoners are treated the same as those in the active market and can access new deals with their existing lender.

There will be no cost to the Government in ensuring that mortgage prisoners are treated in the same way as borrowers in the rest of the market. Taken together, these changes will tackle the harm being caused to mortgage prisoners and their families. It is surely time for the Government to acknowledge their moral obligation to help solve the problem they have created and do something to relieve the plight of mortgage prisoners. I beg to move.

Photo of Viscount Trenchard Viscount Trenchard Conservative 7:15, 13 June 2023

My Lords, I am pleased again to support the noble Lord, Lord Sharkey, in his noble quest to protect mortgage prisoners, as I did when he tabled a similar amendment in Grand Committee.

I appreciated the commitment of my noble friend Lord Harlech in his winding up that the Government would consider the proposals of Martin Lewis, the LSE and the APPG on Mortgage Prisoners that have been put forward. As he said, mortgage prisoners are the forgotten victims of the financial crash. The banks were bailed out at the expense of these borrowers. Furthermore, the margins between the Bank of England base rate and typical standard variable rates have expanded by more than double.

The problem is that the unlicensed lenders that bought the mortgage books of this group of borrowers do not offer the fixed-rate products that are available to borrowers in the active market. I stress that my motive in supporting the noble Lord’s amendment is to support this group of genuine mortgage prisoners, who are unable to switch to a new fixed-rate mortgage despite having been up to date and not missed any payments.

The Government have acknowledged the detriment caused to mortgage prisoners. This Bill offers an opportunity to provide them with some relief from the difficulties that they are trying to cope with. I hope to hear from my noble friend some concrete plan to assist them as the Government have done for many disadvantaged groups—as a result of the Covid pandemic, for example. I look forward to the Minister’s reply.

Photo of Baroness Bennett of Manor Castle Baroness Bennett of Manor Castle Green

My Lords, I rise briefly, having spoken on this issue both in Committee and back in the last financial services Bill, just to put a human face on this. In doing that, I remind the Minister of the representatives of the mortgage prisoners whom we heard from at the meeting in the Treasury a couple of months ago.

The face I have chosen to put on is that of 63 year- old Jacqueline Burns, who spoke to the I newspaper in April about what her life is like now that she is a mortgage prisoner. She said:

“I am cutting back on food because I can’t afford to eat … I am so stressed out right now, I am at the end of my tether”.

The story, as Ms Burns told the I, was that she bought her home in Cambridgeshire for £69,000 in 2006 from SPML, which was an arm of Lehman Brothers. Ms Burns remembers that the broker “was really nice” and “pushed me … towards SPML”. We can all probably imagine why that was. The situation in which Ms Burns now finds herself is that she is on the standard variable rate and owes £109,000; remember that she paid £69,000 for the house. Because of the rise in interest rates, her mortgage payments have gone up from £333 a month to nearly £700 a month. She simply cannot pay.

She is in this situation because of a failure of government regulation, and because of arrangements made by the Government that made a significant profit. There is a huge moral responsibility. If we think about the costs that must be being imposed on the NHS by people who eventually become homeless and need council homes et cetera, it is clear that the Government should look not just at their moral responsibility; they also need to ensure that people get a fair deal and do not end up—even if the Government are not thinking of anything else—costing the taxpayer a great deal.

Photo of Baroness Chapman of Darlington Baroness Chapman of Darlington Shadow Minister for the Cabinet Office, Shadow Spokesperson (Business and Trade), Shadow Spokesperson (Treasury)

My Lords, we are grateful to the noble Lord, Lord Sharkey, for bringing back this amendment and for his persistence on this issue over many years. We are also grateful for the work of the APPG, particularly to Rachel Neale, who herself is a mortgage prisoner and has become a champion for those people who have been affected by this problem. I also want to mention my colleague in the Commons, Seema Malhotra, who is doing a lot of work on this issue.

We are hugely sympathetic towards mortgage prisoners, who have endured difficulties over so many years now, and wish that the Government had acted earlier to ease the burden on them. We were pleased to back this amendment during the passage of the Financial Services Bill in early 2021, when it passed by 273 votes to 235. However, we are mindful that at that point the House of Commons rejected that amendment, and did so at a time when a much larger proportion of the population was experiencing issues with mortgage affordability. In recent weeks, however, we have seen hundreds of mortgage products pulled and rates hiked on those that remain available. A number of major banks have even temporarily withdrawn offers for new customers, putting the brakes on the aspirations of many first-time buyers.

Of course, mortgage prisoners are in a different position, in that they have been facing problems for many years and are just not able to simply switch products in the way that others can. As the Minister will no doubt outline, while this amendment did not make it into the Financial Services Act 2021, it did prompt some new and welcome actions from the Treasury, regulators and banks. New advice was available and a number of lenders relaxed their criteria in certain cases. We know that the elected House has already rejected this proposal and, realistically, it is unlikely to reconsider in the current context, but more does need to be done. Can the Minister let us know whether the Government intend to respond to the recommendations that were made by the LSE in its report? If they are, when will that response be forthcoming? The Government urgently need to get a grip on the issues facing the mortgage market generally and, once that situation has calmed, we hope they will be able to do what they can to ease the difficulties faced by mortgage prisoners.

Photo of Baroness Penn Baroness Penn The Parliamentary Secretary, HM Treasury

My Lords, I thank all noble Lords who have spoken in this debate, and in particular the noble Lord, Lord Sharkey, for tabling this amendment. I start by emphasising that the Government take this issue extremely seriously. We have a great deal of sympathy for affected mortgage borrowers and understand the stress they may be facing as a result of being unable to switch their mortgage. That is precisely why we, and the FCA, alongside the industry, have shown that we are willing to act, and have carried out so much work and analysis in this area, partly in response to prior interest from this House, as alluded to by the noble Baroness, Lady Chapman. This has included regulatory changes to enable customers who otherwise may have been unable to switch to access new products.

The Government remain committed to this issue and welcome the further input of stakeholders. For this reason, during Committee, the Government confirmed that they were carefully considering the proposals put forward in the latest report from the London School of Economics. Since then, as noted in the debate, I have met with the noble Lord and further members of the APPG and representatives of the Mortgage Prisoners Action Group to discuss the findings of the report and the issue of mortgage prisoners more widely.

The Economic Secretary to the Treasury has also written to the noble Lord, including to provide further clarity on the proceeds from the sale of UKAR assets. The LSE report recommends free comprehensive financial advice for all. That is why the Government have continued to maintain record levels of debt advice funding for the Money and Pensions Service, bringing its budget for free-to-client debt advice in England to £92.7 million this financial year.

The other proposals put forward by the London School of Economics are significant in scale and ambition. While the Treasury has been engaging with key stakeholders, including the LSE academics behind the report, for some time, including since Committee, we have concerns that these proposals may not be effective in addressing some of the major challenges that prevent mortgage prisoners being able to switch to an active lender. For example, the proposals would not assist those with an interest-only mortgage ultimately to pay off their balance at the end of their mortgage term.

We continue to examine the proposals against the criteria put forward originally by then Economic Secretary to the Treasury, John Glen, to establish whether there are further areas we can consider. I remind the House that those criteria are that any proposals must deliver value for money, be a fair use of taxpayer money and address any risk of moral hazard. This does not change the Government’s long-standing commitment to continue to examine this issue and what options there may be. However, it is important that we do not create false hope and that any further proposals deliver real benefit and are effective in enabling those affected to move to a new deal with an active lender, should they wish to.

I will not repeat the arguments against an SVR cap, as we discussed them at length previously in this House. An SVR cap would create an arbitrary division between different sets of consumers, and it would also have significant implications for the wider mortgage market that cannot be ignored. It is therefore not an appropriate solution, and I must be clear that there is no prospect of the Government changing this view in the near term. In the light of this, I ask the noble Lord to withdraw his amendment.

Photo of Lord Sharkey Lord Sharkey Liberal Democrat

I thank all noble Lords who have spoken in this customarily brief debate on mortgage prisoners. I especially thank the noble Viscount, Lord Trenchard, for his contribution today and in Committee.

I am uncertain about what the Government’s response consists of. It seems to me that perhaps it consists of three things. The first is exculpatory—it was not our fault. It was the Government’s fault; it cannot be anybody else’s fault that these mortgage prisoners are in the position they find themselves in.

The second thing I am uncertain about is what the Government are actually going to do. I hear expressions of good will and care for mortgage prisoners but I do not hear anything at all that amounts to a plan, or the sight of a plan, or an objective, or something concrete that would help these people. I did not even hear whether we will get a response to the LSE report any time before the Summer Recess, or indeed whether there is a date by which response can be made—perhaps the Minister can enlighten us. I remind her again that by the Summer Recess it will be five months since the LSE report was presented, and the Treasury surely has had time to analyse it in some detail and to make a considered response.

It is quite clear that the real distress experienced by these mortgage prisoners is not understood or felt deeply within the Government or the Treasury. When we had a meeting with the Minister, we had a couple of the leaders of the Mortgage Prisoners group alongside us who told us some terrible stories about what has happened to their families over the past 10 years; 10 years of paying too much money—more than they should have done and more than they needed to in many ways—to these vulture funds.

I remind the Minister that, in the beginning, what happened was this: after the Northern Rock debacle, when the Treasury took over the mortgage books and then decided to sell them on, it sold them to vulture funds without any of the normal protections. The Treasury at the time—or UKAR—said it had an agreement with these vulture funds that would allow changes to fixed rate mortgages and changes out of the mortgages themselves. The vulture funds, of course, deny all that, and there was nothing in writing. In other words, the Treasury chose to sell these products on to the closed market without any protection because it knew that if it did that it would get a higher price for the mortgage books than if it had installed the protections it said it had but turned out not to have done at all.

It seems to me that this leaves us not knowing whether the Government are committed to helping or not. It would be enormously valuable if the Minister could at some point say exactly what they think they can do, or should do or will try to do, to help these people whose lives are being ruined—suicides have taken place and illnesses are common among these people, with stress and anxiety afflicting entire families. We should not leave them without any help, which is effectively what we have been doing up until now.

I am not going to ask the House to divide on all this because, as the noble Lord, Lord Tyrie, memorably said a couple of days ago, the troops do not seem to be here for that. However, I repeat that the Government are being cold-hearted and cruel with these mortgage prisoners and should offer some meaningful support. With that, I beg leave to withdraw the amendment.

Amendment 107 withdrawn.

Photo of Lord Harlech Lord Harlech Lord in Waiting (HM Household) (Whip) 7:30, 13 June 2023

My Lords, I beg to move that further consideration on Report be now adjourned until 8.31 pm.

Photo of Lord Harlech Lord Harlech Lord in Waiting (HM Household) (Whip)

My mistake. I did not mean to imply that it was time-limited. I meant to say that Report stage on the Bill would resume not before 8.31 pm.

Consideration on Report adjourned until not before 8.31 pm.