I beg to move,
That this House
has considered mortgage prisoners.
It is good to see you in the Chair, Mr Robertson. I want to begin this vital debate with something of a confession: like most Members, I did not know too much about mortgage prisoners until just a couple of weeks ago. While I understand that many here today will have been working away on the issue for a while and may be members of the all-party groups, I am still in a state of astonishment and, frankly, anger that the situation happened in the first place and has been perpetuated, I have to say, by successive British Governments.
While it may be convenient to lay these problems at the current tired Government’s door—I hope the Minister will take that in the way it is meant—many of the disastrous decisions that brought this about took place under the previous Labour Government and have simply been rolled over in more than a decade of what seems like unbearable mental torture for those who are stuck in this predicament.
Let me thank my constituent Chris Dorman from Duntocher for allowing me to bring this issue before the House and for agreeing to share their story and that of their family so publicly. I am only sorry that in instances like this, we as MPs so often find it difficult to address historic injustices and can only highlight them and hope that the Government of the day will listen.
Before I tell Chris’s story, I want to be clear at the outset about the questions to which I would like answers from the Minister. I think we now need to also ask the shadow Minister, James Murray, to consider them. Can we have a moratorium on evictions for mortgage prisoners? Can we put a cap on the standard variable rates being offered to victims? Will the Government—and, I hope, the official Opposition—pledge to set up a vehicle to work cross-party for those in closed-book prisons to pivot back into the mainstream market? Those are three fairly straightforward asks, to which the Minister can now take over an hour to find an answer; I may go on for some time. I know that those watching at home, including Chris and his family, will really appreciate an answer.
I thank the hon. Member for securing the debate, and as the founder and co-chair of the all-party parliamentary group on mortgage prisoners I thank him for the work he is doing on the issue. The last Labour Government introduced a consultation to ensure that there was some protection for people when mortgages were sold on, and those measures were pulled away when the Conservatives came into power. Does he agree that we need to go back to those considerations? I support what he said about the cap on SVRs—the APPG has been calling for a cap of 2% above the base rate.
I thank the hon. Member for that intervention. I will go on to the history of some of this. I hope that the APPG agrees not only about a cap on the standard variable rate, but about the other two issues I highlighted. I would be happy to work with the all-party group in future.
Let me turn to my constituent Chris Dorman. I have known Chris and his family over many years, especially his mum Rose, who was and remains to this day a legend in the history of my home town, Clydebank—a working-class history that is so seldom related or reflected in a place such as this. She was one of the founding members of the first credit union in Scotland, the Dalmuir Credit Union, helping countless families just like the one I grew up in. I was member 507; that takes me back some time.
That is relevant—and I hope the Minister will understand this—because we need to begin any discussion about mortgage prisoners with the firm rebuttal of any idea that these people are bad borrowers who are to blame for their own predicament. Chris comes from a family who know how mortgages work and how people should go about choosing a lender and a product that will not cause problems for them or their family in future scenarios. When he took out the mortgage with Northern Rock in 2003 to buy a flat, I do not doubt that he would have kicked the tyres of the agreement and known where to look for potential pitfalls. Of course, he would not have found any.
Northern Rock was a triple A lender, one of the largest lenders in the country and a fast-growing national presence that still had its roots in the north-east of England. I know about this because I got my first mortgage with Northern Rock at around the same time—and believe me, this is the point where I start to think, “There but for the grace of God go I.” I do not think it will be the last time in this debate when that is my overriding emotion.
In 2007, as Northern Rock crumbled in the bank run that heralded the next year’s financial crash, Chris was forced on to an interest-only plan. Although for many people switching to an interest-only payment is a stopgap because of short-term financial circumstances, for people in Chris’s position it has been the beginning of their problems. That entirely understandable decision has rendered them unable to change their lender, as many of us do these days, and move to a more attractive rate.
Instead, through the actions of the now nationalised Northern Rock, Chris was flung to the mercy of a standard variable rate that began to diverge significantly from the Bank of England’s average SVR. The decision was quite deliberate. During a period when we were all dealing with the most significant global recession for decades, people like Chris were having to come to terms with that extra dollop of uncertainty. They probably did not know it at the time, but what would initially have felt like a short-term inconvenience was turning into an actual prison, even if there were already some organisations sounding the alarm.
Like so many, and some of our own constituents, Chris was forced to persist with an entirely inconvenient and increasingly costly arrangement and unable to switch to a better deal, making a mockery of the idea of home ownership and the free market being liberating for individuals and families. Through the last decade he has been paying the 6% or 7% interest rates that many of us now complain of today.
This is where we begin to see a bit of the societal impact of the policy. The village of Duntocher, where Chris lives, is a fairly normal part of my constituency socioeconomically. It has poverty and wealth; it is not the wealthiest part of West Dunbartonshire. It is a community—it was an ancient Roman site and then a mill town that predates Clydebank itself—that has a lot of small locally owned businesses, which would have benefited from the thousands of pounds each year that Chris and his family were overpaying on their mortgage.
Let us not forget that for well over a decade the UK Government were the ultimate holders of that mortgage, through UK Asset Resolution. I can imagine myself thinking that the Government would not do anything so deliberately to harm the hundreds of thousands of UK residents in this position and that a sensible resolution would eventually be found. As we will see, there were numerous attempts to address the issue through the various Conservative Governments we have lived through so far. It was not a purgatory before things got better. They were about to get worse.
In 2019, UKAR sold a tranche of books, including Chris’s, to a company called Heliodor. He had never heard of it, and with good reason, because it is an entity that neither I nor any of us here could borrow from. It is a vehicle that exists solely to serve the existing Northern Rock mortgages. Although it operates in a regulated market, Heliodor’s ultimate owner, Topaz Finance Ltd, is not a regulated entity and relies on third-party administrators who are regulated by the Financial Conduct Authority in order to comply with its regulations.
However, and significantly in Chris’s case, as Kath Scanlon et al’s report from the London School of Economics points out, the setting of SVRs is not a regulated activity, meaning that a business opportunity for morally ambivalent vulture funds such as Topaz has been created, and people—our constituents—are offered up as hosts for a parasite.
Despite never having fallen behind on his payments, Chris found himself subject to a host of fees and other spurious admin charges. Incredibly, the principal he owed rose by almost £10,000 in a few short years, with no additional lending being offered. That pushed Chris into negative equity, as the amount he owed Heliodor became greater than the value of the flat he shares with his wife.
I congratulate the hon. Gentleman on his speech and on securing the debate. My constituent Valerie has written to me. She is a mortgage prisoner, one of 200,000 across the country. She says exactly what the hon. Gentleman has said about Chris:
“I have been a mortgage prisoner since the initial crash of the market and despite never having missed any payments or been in arrears I am unable to remortgage as I cannot meet the new current affordability rates due to the LTV ratio of my property. I am now paying an almost 8% variable rate.”
Is it not the key point here that mortgage prisoners such as Valerie have done nothing wrong? They have met all their payments and have never been in arrears, but they are trapped. They urgently need relief from the Government.
I thank the hon. Gentleman for his intervention. He is correct, and the Government need to listen and take immediate action not only for Chris, but for the hon. Gentleman’s constituent and the more than 200,000 others who I am sure are in the same predicament.
The cruellest part of this sorry tale of modern Britain is this: as Chris approaches the end of the 25-year term of his mortgage, having been forced into the interest-only plan just a few short years after he began to make repayments, he risks losing his family home of a quarter of a century unless he can come up with the full amount he owes to Heliodor. The aspect I find most galling is the inversion of the principle of home ownership, whereby people have ended up paying what is essentially rent to a vulture fund, which almost certainly knows it will be able to acquire the property at the end of the term.
Topaz Finance will have been licking its lips, I am sure, at a deal that is basically guaranteed to be paid twice: first, through the monthly payments that Chris and his wife have been making, and secondly when Topaz Finance sells their home from under them in 2029, at a healthy profit over what it picked the property up for in 2019.
As the House can imagine, the toll this has taken on Chris has been severe, as I am sure it has been for many of our constituents. Chris is unable to work, owing to the mental and psychological strain the situation has provoked, so it is down to his wife, a nurse, to work all the hours she can so they can stay in their home, although they understand the bitter irony that that is only a temporary respite until the hammer inevitably falls in 2029.
It is up to us as Members of Parliament to make sense of this personal calamity—not only for me and for Chris, but for the constituents of other Members—and to think of the consequences of Chris’s story, with hundreds of thousands of people across these islands potentially affected. It is unthinkable.
In such a situation, how do we even begin to ensure not only that our constituents are protected from the avarice of these vulture funds, but that, somehow, there is some sort of recognition of the years they have lived under ever-increasing pressure? How do we make up for the opportunities missed—holidays not booked, families unable to grow, dreams unrealised? As Chris has said to me, this is essentially a form of legalised loan sharking, although unlike illegal loan sharks, vulture funds such as Topaz Finance do not break your legs, Mr Robertson; they break your spirit.
A small gleam of light has been the dawning realisation among mortgage prisoners that they have been exploited by so many of the actors that we are going to hear about today, and I want to thank UK Mortgage Prisoners for the work it has done, including the group’s most recent report, “Setting the Record Straight”, which helped me to understand that, tragically, the experience of my constituent Chris is very much not unique.
In the second part of my speech, I want to explore the opportunities to avoid this disaster that were missed along the way, and to ensure that the possibility of tens of thousands or hundreds of thousands of mortgage prisoners being put out on the street and coming within the ambit of local councils and social services is very much acknowledged. It is important to cast our minds back to 2008, when Northern Rock was a prime lender and in the top five nationally. The LSE report I cited puts it very well:
“The problem of mortgage prisoners was largely created by the actions of successive UK governments in trying to address the excessively risky lending of the early 2000s. The prisoners…are a legacy of the rapid mortgage market expansion that took place prior to the Global Financial Crisis”.
By now we all know about the plethora of seemingly innovative mechanisms to enable wider home ownership, including high loan-to-value ratios. The banks that offered those novel products, such as Northern Rock or Bradford & Bingley, were household names—well-known brands that did not make people think twice about borrowing with them—and even the then Chancellor of the Exchequer, Alistair Darling, stated clearly in 2007:
“I can tell the House that Bank of England lending is secured against assets held by Northern Rock, which include high-quality mortgages with a significant protection margin built in and high-quality securities with the highest quality of credit rating.”—[Official Report,
Vol. 467, c. 960.]
When those books were brought under the auspices of UKAR, borrowers could have been forgiven for thinking that all would be well: they were paying their mortgages, and the UK Government would ensure that they were not taken advantage of. However, even then there were warnings, inside and outside Government, about the potential risks of that approach. In 2009, the consumer group Which? told the Treasury Committee:
“Northern Rock’s mortgage business strategy seems to consist of telling many of its existing customers to go elsewhere and coming down hard on those who have got nowhere to go by having a relatively high standard variable rate and a ‘rapid’ move towards repossession.”
Even the Treasury, in the same year, was quite clear about the risks of allowing those unregulated firms to take over the Northern Rock book. It stated in a report that firms not engaging in regulated activity are not bound by the requirements of the FCA regulations, including, importantly, the requirement to treat customers fairly. It said:
“Non-regulated owners of regulated mortgage contracts may seek to maximise margins by raising interest rates and charges, potentially to levels that are unaffordable to borrowers.”
The same document stated, clear as day:
“Such activity clearly has the potential to cause severe harm to borrowers”.
Yet, incredibly, the UK Government carried on regardless.
Despite interest rates falling as the recession bit, that Government-owned bank settled on a margin of 4.29% over base for its SVR—an increase of 205% in its first year of operations. That is a scandal. In doing so, it made the prison absolutely complete, and hundreds of thousands of our constituents paid over the odds for a product they had bought in good faith, without being able to go anywhere else.
Why did that happen? The best explanation I can find is in the UK Mortgage Prisoners report, which says that the UK Government wanted to
“sell the books as soon as possible for as high a price as possible.”
The action group’s report is a damning indictment of the continued failures of Government policy, but it manages to keep the obvious emotional distress caused to its members just below the surface, to devastating effect. In meticulously researched tables, we see in black and white the money that has been lost to our economy from the detriment of keeping the SVR well above the base rate. From my calculations—I stand to be corrected by Chris—my constituent and his family have overpaid by at least £40,000.
If we cannot take away the pain and suffering this issue has caused over the years, we at least owe the victims an answer about why it happened. The LSE attributes it to the general climate created before the 2008 crash, but it is important to acknowledge how deep these roots are, because we are still dealing with so much of the fallout today.
The long tail of that era of neoliberal economics is still pernicious, because it confuses concepts such as taxpayer value with what any of us would normally take it to mean. Taxpayer value, to people like me, is not found in pauperising hundreds of thousands of households. It is not to be found in scraping back every single penny that taxpayers saw spent on ensuring that the economy did not collapse overnight.
Government is not a bank, with shareholders that need to see the principal of loans paid back in full. Government is an institution that is able to intervene in the economy at strategic moments. That is an idea that is slowly coming back into fashion, but I wonder how many of our national assets have found their way into the paws of this type of offshore capital in the intervening 40 years, leaving the taxpayer with all the costs, none of the benefits and absolutely hee-haw value.
The Government share much of the blame, and I am sure that we will hear from others of their myriad failings over the years, but we should take a moment to remember that the policy was conceived and established under a British Labour Government. Furthermore, that Government fully embraced the model of deregulated, neo-liberal economics; they continued the Thatcherite legacy of public assets being valued only where they were on the balance sheet, and taxpayers existed only in the abstract, not as individuals.
It was Gordon Brown—that saint who, we heard last week, could be elevated to the House of Lords—who set up the very FSA that allowed this tragedy to happen. The FSA, in his now infamous words, would herald
“not only light but limited regulation” of financial markets. However, it will not do Chris or our constituents much good to dwell on the past. As I draw my remarks to a close, let us revisit my three questions for the Minister, which I think the shadow Minister should also reflect on. First, on evictions, as we begin to reach the end of the terms of those who took out 25 or 30-year mortgages at the beginning of the century, let us do what we can to lift the burden that they have carried over the years. I know, from reading briefings, that the Government are concerned about what they call the moral hazard of acting. If these people, in 2023, have not already had their houses repossessed, they must necessarily have kept up with repayments, so there is a strong case for saying that the moral hazard lies in the other direction: companies have been deliberately stringing them along.
Secondly, surely it is natural to put a cap on the SVRs being offered to mortgage prisoners, especially given the general climate of mortgage instability. Our constituents have been coping with high interest rates for a considerable time. We gain nothing from pushing them further into debt, and in the past couple of days, some interest rates have been around 12.6%. Of course, there will be a cost to the taxpayer in the abstract, but this move will be an investment that pays itself back through the cascade of money into our local economies, instead of into the pockets of offshore vulture funds. The day of balance-sheet economics needs to end.
I understand that an amendment to the Financial Services and Markets Bill was put forward in the other House by the co-chair of the all-party parliamentary group. I would be interested to hear whether the promise that the Government made when that amendment was withdrawn, to meet mortgage prisoners, has been fulfilled. The Minister knows a lot about that Bill.
Finally, the Government owe it to mortgage prisoners to find a way for them to help themselves out of this mess. They should look into providing a vehicle that allows mortgage prisoners to pivot back into the mainstream market. The first suggestion of the LSE report is that there should be free, comprehensive financial advice for all victims; almost 200,000 people should be contacted individually to help them navigate their way out of the quagmire that they find themselves in. As I said, it gives me no pleasure to conclude that it appears that there is nothing that we can do to make up for what UK Mortgage Prisoners calls the
“extortionate interest rates, severe financial restrictions and mobility and mental &
physical issues caused by this Government-made scandal.”
However, that does not mean that we should not try. I hope that the Minister and the Government can see from the interest in today’s debate that they now have a chance to do what they can to make things right.
It is a pleasure to serve under your chairmanship, Mr Robertson. I thank Martin Docherty-Hughes, who has just made an incredibly powerful speech.
Twice this week, I have spoken in Parliament about the banks and how constituents have been let down. The situation with mortgage prisoners is a scandal in its own right, and a great problem is that it is frankly not spoken about anywhere near enough in this House. For those of us who have constituents who are affected by the situation, as I do, it is utterly heartbreaking to hear the stories. We often hear stories of people’s plight in this place. The plight and the financial situations of mortgage prisoners are particularly devastating.
I am rarely lost for words, but yesterday, when I came off a call with a constituent who had given me an update on her story, I realised I had found it an incredibly emotional experience. I will not use her name, but she is one of 195,000 people across the country affected by this problem. Many people around the country will be struggling with higher mortgage rates, but mortgage prisoners are in an entirely separate situation; they are in a degree of difficulty that is beyond what the average person is probably experiencing with their increasing mortgage rate. That is through absolutely no fault of their own, but because of the situation that occurred back in 2008 with the banking crisis.
My constituent’s situation is, I am sure, replicated among the 195,000 people affected by this problem. She is paying £1,782 a month for her mortgage. She is in arrears. She is under a Heliodor mortgage—the hon. Member for West Dunbartonshire mentioned that lender; I had never heard of it either—and is paying 9.24% to a lender that does not even have a lending licence. Many statistics suggest that the mortgage rates of millions of people across the country are shooting up by 5% or 6%, but some mortgage prisoners are paying 12% or 13%. Can anyone imagine what that pressure and stress must be doing to those households? The average mortgage prisoner is paying 9%. As has been echoed by hon. Members, we absolutely need to look at the standard variable rate, specifically for mortgage prisoners, because it is not right for families to end up in that situation. They are utterly trapped by what happened back in 2008, when mortgage books were sold off.
Another issue is that many mortgage prisoners are now older families; they got into this situation some 15 years ago, when the banking crisis first happened. In my questioning, I try to understand the situation. I ask questions such as, “Well, why can’t you exit this financial arrangement by selling up and moving on?” It is not that simple for families, who may well have children. The lady I spoke about has a family of three, and one child is disabled. Her situation is creating untold distress for her, and is affecting her mental and physical health. In constituencies such as mine, people cannot just sell their house and find another at an achievable price. I live in a beautiful area on the north Norfolk coast, where house prices are extremely high, the rental situation is extremely difficult, and the local housing list has roughly 3,000 people on it.
These are people’s homes. They are private homes. We must have some compassion and help people who, through no fault of their own, have ended up in this situation. As has been said, people cannot just move to another mortgage product, because they will simply fail to meet the lending criteria and the affordability test. My constituent was in a perfectly normal mortgage until the collapse of Northern Rock. We are told that there is help and support out there, but that is not always the case.
I am on the record as saying on Monday night that the Minister is a good man, and that when I talked about banking hubs, he listened to all the problems that I brought him about bank closures in my constituency. I say that again. If his officials are watching, will they please help my constituent? She would readily listen to help and advice. I asked her what one thing would help make the problem go away. One of her answers was, “Will the Minister engage with the mortgage prisoners group, so that he can understand the situation for so many people who have worked hard and got into this situation?”
Let me finish by saying that the Government have done a good job of dealing with the escalating problem of interest rates in recent weeks, including through the Chancellor’s meeting with all the lenders. I want those words on the record. We have worked extremely hard to help families up and down this country. Let us now go that extra mile for the cohort of people who are affected by the mortgage prisoners problem. They are hurting more than most people at the moment, because of their particular circumstances.
I also thank my constituent Mr Masood, who is a mortgage prisoner and who brought this issue to my attention five years ago. That led to the founding of the all-party parliamentary group on mortgage prisoners. He is one example of someone affected by the issue, and I know that other Members will have similar constituents. Their experiences will be reflected in those of many in the UK Mortgage Prisoners Facebook group—people whose families have paid the price for the situation facing mortgage prisoners. They have made huge sacrifices of their family income and their health just to try to stay in their home, a battle that seems to get harder and harder.
This debate is about mortgage prisoners, but it comes in the context of a much wider difficulty facing mortgage holders across the country as a result of the challenges in the economy, and the mismanagement of our economy over 13 years of cumulative failure and reduced resilience. That was certainly compounded by the mini-Budget last September, which saw the cost of borrowing rocket for Government, local government and households. My constituents are looking at a £4,000-plus increase in their mortgage payments this year on average.
I thank the Minister for meeting me, people from the Mortgage Prisoners Facebook group, and colleagues from the all-party parliamentary group relatively recently. That was important. We were discussing the LSE report, which Ministers have written to me about. I have concerns about the gaps in the letter I received on
“the forgotten victims of the financial crash”.
I am co-chair of the all-party parliamentary group, and we have heard from many mortgage prisoners about the sheer desperation of their situation, the harm caused by high interest rates, and the Government’s ongoing policy failures. I am concerned that Government and FCA policy are directly contributing to ongoing harm to mortgage prisoners.
When the Government sold the Northern Rock and Bradford & Bingley mortgages, they could have sold them to active lenders that would have offered mortgage prisoners new deals. UK Asset Resolution, however, told Lord McFall, the former Labour Chair of the Treasury Committee, that selling those loans would result in customers being offered new deals, extra lending and fixed rates. Whether or not that was in writing—I believe it should have been—that was the understanding when mortgages were sold on to Cerberus Capital Management and others. The requirement was not written into the contract when the loans were sold, and the vulture fund Cerberus, which bought the loans, refuses to offer customers new deals, extra lending and fixed rates.
The Government have sold the mortgages of mortgage prisoners to vulture funds and inactive lenders, which have exploited mortgage prisoners through high interest rates. FCA rules meant that for years, mortgage prisoners were told that they could not afford to pay less. That was not true. Despite having regulatory oversight of many of those funds, the FCA has refused to intervene and ensure that mortgage prisoners are treated fairly. The FCA allows banks to exploit mortgage prisoners by holding them in separately authorised subsidiaries and keeping them on higher rates.
The Co-operative Banking Group exploits mortgage prisoners in a subsidiary called Mortgage Agency Services Number Five Ltd. Barclays holds mortgage prisoners in its Kensington Mortgages subsidiary, and is pushing for repossession from mortgage prisoners, such as Gregston Clarke, a delivery driver from south London. Both the chief executive officer of Barclays and the FCA know all about that case, but nothing is being done to help.
It is clear that the FCA and Government interventions to date have not worked. I reference that because the Minister speaks about the modified affordability assessment in his letter of
The FCA’s review confirmed that interventions have had only a tiny impact so far. Only 2,200 of the almost 200,000 mortgage prisoners have been able to switch. Lenders had limited appetite for offering options to switch using the modified affordability test, and only 200 borrowers have been directly helped to switch as a result of the changes. The FCA continues to claim that many mortgage prisoners should be able to switch, but it has not done nearly enough to understand why so many are still stuck. The turmoil in the mortgage market following the mini-Budget made things worse and removed some of the escape routes that could still have been available.
Immediate action is vital, as the situation for mortgage prisoners is getting worse every day. The APPG has highlighted over several years that there is no way for them to gain any certainty over their mortgage payments. The firms that owned and administered the mortgages, which are inactive lenders, have refused to offer mortgage prisoners fixed rates.
The Bank of England has now increased the base rate 13 consecutive times since December 2021. The SVR for Northern Rock was originally around 2% above the base rate. Now SVRs charged to mortgage prisoners are 4% above the base rate, or even higher. The standard variable rate charged by Landmark Mortgages is currently 8.64%, and it will go up to closer to 9% following the interest rate rise last week. Other mortgage prisoners are paying rates of 10% or 12%, which is unacceptable and utterly crippling. Lenders are taking advantage of trapped customers, but the FCA and the Government do not seem to be willing to do anything for those who are being hit harder than other mortgage holders because of the peculiar circumstances in which they are trapped.
I pay tribute to Rachel Neale, Jill and other volunteers in the UK Mortgage Prisoners Facebook group, who witness the harm being done to mortgage prisoners every day. These prisoners may be families who are suffering, unable to heat their homes. They may be cancer patients enduring very miserable final years. The volunteers witness their sheer desperation. They themselves are mortgage prisoners who may suffer from ill health, and they also worry about how they will make payments on their homes. They are on the frontline, and they are expected to support mortgage prisoners without any support to do so, all in their own time as volunteers. They witness people’s desperation as they face repossession caused by years of being exploited by inactive lenders. Some of those people have committed suicide, and others talk about committing suicide. It is particularly worrying that there is nothing to stop the mortgage prisoner problem getting worse. I pay tribute to those who are sitting in the Gallery, and I thank them for being here.
Anyone can find their mortgages sold on without their consent to an inactive lender, which could trap them on an SVR. The APPG has put forward proposals to cap standard variable rates for inactive lenders and require them to offer mortgage prisoners fixed rates. Those interventions would not affect the wider active market; they would be targeted at that particular set of mortgage prisoners because of their circumstances.
Martin Lewis has supported and co-funded research by LSE, which launched its report on
“People have been left in financial, physical and mental misery, exacerbated by the pandemic and cost of living crisis ripping through their already dire situations. When we put solutions to the Treasury in the past, it said it wanted to look at them, but couldn’t as they weren’t costed. Now, having fought tooth and nail to get some of the data needed from official institutions, it is costed. The Government has a moral and financial responsibility to mitigate some of the damage done.”
Almost four months later, the Government have yet to provide a response to the recommendations in the LSE report. Every month of delay causes more harm to mortgage prisoners.
I want to mention the Chancellor’s mortgage summit and the new mortgage charter, which was announced after the summit. It is important to note that lenders such as Landmark Mortgages, Heliodor Mortgages and Engaged Credit were not invited to the summit and—unless the Minister wants to correct me on this—have not signed up to the proposals that were discussed. We wrote to the Minister about the issue and asked for them to be invited to a meeting with the Chancellor. The new charter is voluntary, and there is still significant discretion for lenders. It is a far cry from the help now offered to all mortgage holders that was outlined last week by the shadow Chancellor, my right hon. Friend Rachel Reeves.
As the APPG has pointed out, large loopholes remain in the FCA guidance. Although it includes a lot of action that lenders may take, such as extending terms, switching rates and switching to interest-only mortgages, it does not require any help to be offered. Lenders such as Landmark Mortgages can continue to trap people on high standard variable rates and offer no help. There is nothing for those coming to the end of their interest-only mortgage term and facing repossession.
The FCA interventions on mortgage prisoners, to which the Government continue to refer in their correspondence and debates, have not reduced the detriment being caused, and the Chancellor’s mortgage summit provided no help for mortgage prisoners facing soaring SVRs. Mortgage prisoners are suffering hugely. It is an injustice, it is a scandal and it is getting worse for them every month. We need urgent action so that they are treated fairly and offered fixed rates. We need the Government to respond to the LSE report, to take responsibility and to work to deliver solutions that ensure fair treatment for all mortgage prisoners.
It is a pleasure to see you in the Chair, Mr Robertson. I congratulate my good friend and comrade, my hon. Friend Martin Docherty-Hughes, on securing the debate and on giving an excellent outline of the position of so many people who are caught up in this scandal. I compliment the hon. Members for North Norfolk (Duncan Baker) and for Feltham and Heston (Seema Malhotra) on their excellent speeches, too.
As others have said, mortgage prisoners are people who cannot switch mortgages to a better deal, even if they are up to date with their payments. It is estimated that up to 40,000 people in Scotland are currently in the category of mortgage prisoners. Most mortgage prisoners have a mortgage in a closed book of an inactive firm, which means that the mortgage is held with a lender that can no longer make mortgage contracts because they are not authorised to do so. At the same time, regulators and lenders are imposing more stringent criteria on borrowing to help to prevent another financial crash, and many people are unable to meet the new conditions. As a result, they are unable to move to other deals, even if they would pay less by doing so.
Stakeholders including Martin Lewis and the UK Mortgage Prisoners action group have consistently criticised the Government for not taking action to help mortgage prisoners. Earlier this year, a report produced by the London School of Economics and funded by Martin Lewis said that the UK Government had made a surplus of £2.4 billion from the sale of mortgage books. It offered costed proposals that it argued would meet Government criteria for helping to solve the problem.
As we know, there have been previous parliamentary debates on the issue. In 2021, the Lords agreed an amendment to the Financial Services and Markets Bill that the Commons voted against during ping-pong. The Government argued that it would be an unacceptable and unfair intervention in the mortgage market; as a result, the Lords agreed to remove the amendment. The chief executive of the FCA told the Treasury Committee in May 2021 that further reforms to help to resolve the situation were up to Parliament. In March 2023, Lord Sharkey introduced an amendment to the Financial Services and Markets Bill that was identical to the one passed in 2021, but he agreed to withdraw it when the Government promised to meet stakeholders to discuss the proposals in the LSE report. I hope the Minister will update the House on where those discussions are.
It is abhorrent that people are at risk of losing their homes as a result of being mis-sold their mortgages prior to the financial crash. Homeowners across the UK are being hit by soaring mortgage rates, but mortgage prisoners are being hit even harder.
My opening speech explained why we got here. Does my hon. Friend agree that an addiction to a neo-liberal economic model is to blame for the treatment of mortgage prisoners?
I agree. There is also a poverty premium that we need to discuss, which I will come to shortly.
As Rachel Neale from the UK Mortgage Prisoners campaign group has noted, their interest rates have gone from 4.5% all the way up to 9%, 9.5%, 10% and above. A number of these homeowners have been trapped—
I am grateful that Rachel Neale and others who are caught up in this situation and who are in the action group are here in the Gallery today. I hope they looked forward to this debate, and I hope that the Minister will be able to reassure them and give them solutions, as a result of the debate secured by my hon. Friend the Member for West Dunbartonshire.
To put the figures into perspective, someone with an interest-only loan of £120,000 managed by Landmark Mortgages would have seen their payments shoot up by £5,100 a year even before the latest interest rate rise, which was announced last week. This is one of the starkest examples of the poverty premium that I have referred to in answering my hon. Friend the Member for West Dunbartonshire. People who are unable to meet affordability criteria pay way over the odds for something for which people in better financial positions are charged much less. It is incredibly unfair that these individuals are paying the price for widespread irresponsible lending prior to 2008.
UK Mortgage Prisoners have highlighted the dire impact that being a mortgage prisoner has on people’s mental health. I will quote Rachel Neale again:
“We have had people openly put on the [Facebook] group that they want to commit suicide if this rate rise happens because they have nowhere to go. It’s devastating—families are in impoverished situations, they’re facing homelessness.”
That is the seriousness of the situation.
In 2020, UK Mortgage Prisoners carried out a survey among mortgage prisoners and found that 3% had contemplated suicide as a result of their situation. It is not unreasonable to assume that that already high figure will likely have increased during the current crisis.
The UK Government must finally take steps to support mortgage prisoners and enable them to re-mortgage with active lenders. The London School of Economics report on mortgage prisoners includes indicative costings, as requested by the Government. The report sets out a range of solutions for helping mortgage prisoners to be able to re-mortgage with active lenders, including free comprehensive financial advice for all mortgage prisoners, which is required for any borrower who might go on to access other solutions; interest-free equity loans to clear the unsecured element of Northern Rock’s “Together” loans; Government equity loans that are interest-free for the first five years on the model of help to buy; and a fall-back option of a Government guarantee for active lenders to offer prisoners new mortgages.
It is estimated that those solutions could cost between £50 million and £348 million over 10 years, depending on take-up. While the overall outlay would be between £370 million to £2.7 billion, that is reduced to £50 million to £347 million net as the Government would hold some equity loans themselves.
The Government have a moral duty to act to support mortgage prisoners, because being in that position has a devastating impact on individuals, and because the UK Government made a surplus of £2.4 billion from the sale of the mortgage books, according to the London School of Economics report. It is an indictment of the UK Government that they have left it to an individual campaigner, Martin Lewis, to fund the study, despite being fully aware of the utter misery caused by the situation facing financial prisoners. Now that campaigners in the LSE have done the hard work and presented the UK Government with fully costed plans that meet their criteria, the very least they could do is to take the steps needed to bring those plans into action.
I will close with a quote from Rachel Neale from the group:
“The severe harm already endured for over a decade, compounded now by 10 consecutive rate rises, means time is not a currency mortgage prisoners have. The proposed solutions need to be considered in detail, and urgent action is required now before more homes and lives are lost.”
I look forward to the Minister’s response to that contribution.
It is a pleasure to serve under your chairmanship, Mr Robertson.
As we have heard, this debate on mortgage prisoners takes place in the context of wider concerns about mortgages, as mortgage payers are being hit by increases in interest rates. People who have done the right thing by saving for a deposit and then buying a home now face their payments going up by hundreds of pounds a month through no fault of their own. The interest rate rises are affecting millions of families with mortgages, both those with a variable rate deal who are impacted month on month and those with a fixed-rate deal that has recently expired or is about to do so. The impact of the rises is being felt beyond mortgage payers and their families, as private renters are also often suffering an increase to their rent as a knock-on impact of higher interest rates.
Today’s debate focuses on a particular group of mortgage payers: mortgage prisoners, who face the impact of the recent increases in interest rates on top of the historic uncompetitive rates of the deal they are on. We all know how much fear and hardship rising mortgage payments can cause, so I commend Martin Docherty-Hughes for securing the debate. I also commend the work of Rachel Neale and other campaigners on this issue. I listened very carefully to the hon. Gentleman as he set out his points and talked about his constituent Chris and his family. I welcome the contributions of other Members, including Duncan Baker and my hon. Friend Seema Malhotra, who mentioned her constituent Mr Masood. They set out much of the detail of the situation facing mortgage prisoners.
As we heard, there are around 200,000 mortgage prisoners in the UK. That is the number estimated by Money Saving Expert, and it aligns broadly with the calculation by the Financial Conduct Authority of around 195,000 mortgage holders in closed books in 2021. Mortgage prisoners face being hit by the same interest rate rise as other mortgage payers, but without even having had the option to move to a cheaper rate deal in the past. We know how much stress, anxiety and hardship soaring mortgage payments cause to so many people across the country. The debate has given us a chance to focus on how particularly acute that is for mortgage prisoners who are already stuck on an uncompetitive deal. I very much look forward to hearing the Minister’s response to the points raised by so many Members about mortgage prisoners.
I would also like to take this opportunity, briefly, to once again urge the Treasury to follow through on the broader plan we set out in recent days to help mortgage holders through the difficult times that so many are facing. Action for all mortgage payers is desperately needed, as banks are withdrawing mortgage deals and the average household is facing a hike of almost £240 a month on their mortgage. Across the UK, 13 years of economic failure has left us exposed. We have the highest inflation in the G7, and UK households are paying almost £100 a month more in mortgage payments than those in other European countries. Millions of households need help now, so it is deeply frustrating that the Government are refusing to make measures to help households mandatory.
I am going to challenge the shadow Minister on some of the points I made earlier. Do his Front Benchers agree that we need a moratorium on evictions and a cap on standard variable rates? Will he pledge to support a cross-party vehicle for those on closed books to pivot back into the mainstream market—yes or no?
I thank the hon. Gentleman for setting out those points, and I add my voice to the call on the Minister to set out the Government’s position. We are pushing for a wider response to help mortgage holders across the piece, but the Government are in a position to respond to the hon. Gentleman’s points.
I want to use this opportunity to talk briefly about the wider impact of the mortgage rate increases on mortgage holders across the market. The plan that we set out in recent days would require lenders to allow borrowers to switch to interest-only mortgage payments and lengthen the term of their mortgage period, reverse support measures when the borrower requests, and put in place more protection for mortgage holders from repossession proceedings. We would instruct the FCA to ensure that mortgage holders’ credit scores are not affected.
I also want to focus briefly on renters, who need to be part of the conversation about mortgage holders. They are being impacted by the increase in mortgage rates, and the Chancellor did not mention them on Monday. Will the Minister take this opportunity to refer to them?
The rise in interest rates as a result of the UK’s being particularly exposed to inflation will see us paying more on our mortgages than our European neighbours. That undermines the fundamental security that families across the UK need. We therefore urge the Government to follow our plan so that people across the UK are protected. I look forward to the Minister’s response to the points we have made about mortgage prisoners.
It is a pleasure to see you in the Chair, Mr Robertson. I congratulate Martin Docherty-Hughes on securing the debate. I thank all Members for their contributions, including my hon. Friends the Members for North Norfolk (Duncan Baker) and for Kettering (Mr Hollobone) and Seema Malhotra, whose chairwomanship of the all-party parliamentary group on mortgage prisoners does so much to increase the standing of Parliament.
Our primary role, as we represent our constituents, is to use our voice to ensure that nobody feels that they are being forgotten. Today’s debate is proof of that. There are no easy answers, but this is Parliament at its finest, as it uses its powers to compel Ministers to come and account for themselves. I am grateful for the work of Rachel Neale and others in the Public Gallery who are continuing with this campaign.
I am humble about the potential failings of Government and regulators. It is not my role to sit here and mouth platitudes. I am not going to say that everyone always gets it right, and I cannot offer false hope. There is a lesson for us all in what we saw with the Horizon scandal, involving postmasters: every human process is fallible. As Minister, I will continue to keep an open and inquiring mind on such issues.
I will make the same points that I made to the shadow Minister. In the interests of openness, will the Minister consider at some point a moratorium on evictions and a cap on the standard variable rate? Will he pledge to support the creation of a cross-party vehicle to enable closed books to pivot back into the mainstream market?
I was just starting, but I will try to address the points that Members have made in the debate, including those made by the hon. Gentleman.
The Government and I recognise the anxiety that people in general have about mortgages, and we will use the tools at our disposal to limit the rise in rates. I will leave the general points and address the specifics about what we are debating today. We spent a lot of parliamentary time yesterday debating the new mortgage charter, but this is clearly a different debate—about those who have been in this situation for a long time, such as the hon. Gentleman’s constituent Chris and the constituents in Feltham and Heston and North Norfolk.
Before the Minister moves on to the specifics, I want to make a general point. I thank him for his words about the work of the all-party parliamentary group and the UK Mortgage Prisoners group. We want to ensure that we get a solution—this is all about getting a solution to a challenge that has been intractable. Our strong belief is that more can be done, and it will take the Government to step forward and be bold about getting a solution, working with the regulator, which also needs to step up to the plate.
I thank the hon. Lady for her intervention. I have met her and campaigners previously, and I am happy to undertake to continue to do so. The best way to find solutions is by working together. I would caution that everything I have seen so far tells me that there is no one-size-fits-all solution. There are a very large number of categories. There is a temptation to aggregate to the largest possible number, but the FCA’s analysis slices it down into more detail and recognises that there are varied circumstances in terms of why people have reached the position they have. I would love to hear more from the hon. Member for West Dunbartonshire about his constituent Chris’s circumstances. He told us that the mortgage was taken out in 2003, which was well before the change in Northern Rock post-2008. By 2007, it had already moved into an interest-only mortgage.
I am a data-led Minister, and as we unpick the data we often find co-mingled in these issues, understandably, the human stories of people who are vulnerable, have fallen on hard times and have been affected by the personal tragedies that all of us as Members hear in our constituency surgeries every week. But those are, to some degree, disconnected from their particular choice of mortgage and are circumstances that affect the wider taxpayer population.
I need to come back on that point. The only tragedy here is that my constituent and his wife will lose their home in 2029 if this Government and any future Government do not get their finger out.
I hear the hon. Gentleman. As I say, one of the ways to explore solutions is, I would counsel, to look at the individual circumstances and see what remedies, if any, there are, based on particular cohorts.
I thank the Minister for giving way again. I want to make two points. First, it is important to recognise, as the APPG has, that there will need to be longer-term solutions, but there also need to be short-term measures to deal with the situation specifically for mortgage prisoners among other mortgage holders.
Secondly, it is important not to characterise mortgage prisoners as people who have fallen on hard times. These are nurses, teachers and people in all professions. It is the circumstances of the mortgages and how they have been sold on that has been the issue. They have done nothing wrong, and they have not fallen on hard times. This is about the lack of support and protection of the terms on which they bought those mortgages, which were then taken away when the mortgages were sold on.
That is fully understood. This is not about any attribution of fault. It is about looking at what the FCA found and the LSE report, which I have read and studied, did not disagree with: that there are a number of different cohorts within this broader category. As we seek solutions, sometimes we might find more illustration by looking at individual fact patterns. The hon. Lady mentioned the modified affordability assessment, which was one attempt to move forward. She observed, rightly, that it helped a relatively limited number of people, and we should try to learn from that. There was an inertia among some, and many mortgage prisoners were contacted, but many fewer engaged in that process.
The Government have consistently committed ourselves, and I am committed, to looking for practical and proportionate options where we can deliver genuine benefits for groups of borrowers, and we are committed to looking at where such interventions would be fair. It is the role of Government to try to ensure fairness and parity across different groups in society, although—while I hear what has been said about the circumstances people are in—we cannot simply solve the problem if somebody is, for example, on an interest-only mortgage but there is no plan in place to repay the principal. That is not confined simply to borrowers on inactive mortgage books, as, sadly, it happens across the market, but we want to ensure that there is the maximum number of options to switch and that all those who might want to switch are aware of the options. There is an awareness issue, as well as the specific problems that people face in the switching process.
Let me address the points raised by the hon. Member for West Dunbartonshire. We heard about the idea of a cap on the standard variable rate for mortgage prisoners. I do not want to repeat all the arguments at length, but that would be a one-size-fits-all solution. It is not, in the view of the Government, appropriate to do that, and I do not want to create a false expectation.
On a moratorium on evictions, there are already well developed pre-action protocols. The remit of the Financial Ombudsman Service does apply, with other remedies behind that. The fact that inactive lenders are not regulated in the same way as active lenders by the FCA does not in any way mean that the remedies available through the FOS are not available. I am happy to work with the FOS to ensure that that point is understood, and to learn from it the data that it has, such as the number of people who have petitioned and sought its support on the issue. Perhaps in some cases that might offer a potential remedy.
Even the LSE’s earlier report of November 2022 argued against the introduction of a standard variable cap, for some of the reasons that we have talked about. The Government have to be evidence-based. The LSE report of March 2023 did talk about free, comprehensive financial advice. Again, that reflects the bespoke nature of some of the problems, and potentially some of the routes forward for individuals. The Government provide significant independent financial advice that is free at the point of use through the Money and Pensions Service. The overall budget for that is £93 million.
I am interested in hearing, perhaps through the all-party parliamentary group, mortgage prisoners’ experience of accessing that financial advice. That was the No. 1 recommendation of the LSE, and that experience could shed more light and data on the subject. I am happy to explore that with hon. Members and, if necessary, convene a meeting with the Money and Pensions Service, or with individualised debt advice charities, to see how we could try to scale that solution.
Very briefly. We would be happy to share that experience and to have the voice of the mortgage prisoners group heard. There is a slight concern that this is seen as the problem of the mortgage prisoners. They are very aware of their situation, and they had sought all sorts of advice. It would be helpful to share that experience and the work we have done with the FOS, which might be constructive with respect to how we move forward.
I thank the hon. Lady for that constructive intervention. Again, I am committed to working with all comers as we try to find solutions that will help to move the situation forward. I understand the distress that people find themselves in. Whatever the situation was before, I understand that in an environment of rising rates people will feel the effects much more acutely, so I commit to work on that.
I want to fully address all the questions asked by the hon. Member for West Dunbartonshire. We have talked about the moratorium on evictions, and the existing legal framework applies in that space. A global cap on the standard variable rate is not the right or appropriate answer. In terms of working on a specific vehicle for those in closed books, again, I would rather work with the data and look at individual cohorts. As hon. Members have observed, a significant number of the so-called mortgage prisoners are now approaching the end, the maturity—the point at which the question is not necessarily about switching but about how to redeem or repay the capital or look at alternatives at the end of the process. That is one example of why a simple, single-point vehicle would not be the right answer.
We will continue to work with everybody who has expertise in this space, including those who have done work as part of the LSE report. We have to reconcile that duty with others who face similar circumstances, but perhaps are not in this particular category.
I have not responded to some of the more party political points, but I want to make sure that people feel the debate has been constructive and that they are being listened to. We will continue the dialogue and engagement to try to bring forward solutions where we can. We need to work with industry and the Financial Conduct Authority, which is the regulator. I have mentioned the potential role for the Money and Pensions Service. We will continue to try to find solutions that would defuse some of the deleterious impact on people and get more people the ability to switch. No one has ever been explicitly prohibited from switching, but I understand that one of the unintended consequences of regulation has been that in some cases people have been prevented from shopping around in the market, as other constituents can.
Finally, from a broader economy perspective, we will continue to do everything we can to bear down on inflation and interest rates, and we hope to get as quickly as possible back to an environment where rates are not rising. I thank the hon. Member for West Dunbartonshire for securing this debate today.
I thank all Members here today for participating, and I thank the Mortgage Prisoners action group—some of its members are in the Public Gallery. Most importantly, I thank my constituent Chris. I commit to him, his family and so many other mortgage prisoners to continuing to campaign for them and their demand for justice. I leave the last word to the Mortgage Prisoners action group to set the record straight, given some of the points that have just been made:
“From research within the UK Mortgage Prisoners Group of 4,200 members less than 10 have benefited from the modified affordability criteria introduced in November 2019. It has, by all measures, been a failure. The Money and Pensions Service, who were introduced as the organisation for mortgage prisoners to go to for advice and clarification about being a ‘mortgage prisoner’ have in recent communications revealed that out of 445 client calls, 66% did not fit the criteria to access the better deals…and they are aware of only 36 people who have successfully remortgaged.”
In the group’s words,
“From this failed attempt at a market led intervention it is clear it is time for the Government to stop pretending that the markets can offer an adequate solution for mortgage prisoners.”
I hope that the Government are listening.
Question put and agreed to.
That this House
has considered mortgage prisoners.