Three amendments to the Financial Services Bill that were written to assist mortgage prisoners were opposed by John Glen MP in a parliamentary debate today.
New clauses 24, 25 and 26 proposed, in order, to extend the FCA’s regulatory perimeter to allow it to regulate the management and ownership of a regulated mortgage contract, to cap the standard variable rate payable by borrowers who can’t switch to a different lender, and to require lenders to seek written permission from a borrower before transferring a loan.
Glen, who is the economic secretary to the treasury and the City minister opposed all three, saying: “I’m afraid that these amendments risk a number of unintended consequences and would be disproportionate to support a small number of borrowers.”
He went on to say that the beneficial owners of the “vast majority” of firms that manage mortgage activities to not themselves manage relevant activities. “Therefore, extending the FCA’s oversight to ownership would also have little impact on consumer outcomes.”
He continued: “It’s important to emphasise that extending the perimeter would not allow consumers to access new deals or cheaper rates that they could not already.
“This amendment not only seeks to extend the FCA’s remit to more firms that engage in mortgage lending, but also to the type of mortgages that are regulated. And this would bring in to regulated scope lending such as buy-to-let lending and would fundamentally reshape the regulation of the mortgage market in the UK.”
Regarding the second amendment, Glenn commented: “Data from the FCA suggests a narrow majority of borrowers with inactive lenders by 3.5 per cent interest and compared to those with similar lending characteristics, consumers with inactive lenders only pay marginally more – 0.4 per cent than those with an active lender.”
He added: “[This] would represent a significant intervention into the market, potentially having an impact on financial stability, as it would restrict lenders’ ability to vary prices in line with market conditions.
“I believe such an intervention would be disproportionate and potentially counter-productive.”
When pressed further, he said that he had met Martin Lewis, “who does some excellent work in this regard… and commissioned some work from the London School of Economics to look into this.” The conclusion, Glenn said, was that there should be no SVR cap.
He continued: “125,000 of the estimated 250,000 prisoners have been able to switch to more affordable mortgages if they aren’t taking on lending or aren’t in arrears.
“This is a complex problem… I’m still focussed on the 55,000 [borrowers] we estimate are in that difficult position and I will continue to work with stakeholders and industry representatives to find solutions working closely with the FCA. But that doesn’t permit me to just simply allow any intervention this way.”
And on the final amendment regarding mortgage prisoners, Glenn said that such a rule would give rise “to significant financial stability concerns – especially if a firm is entering liquidation, since it would prevent the timely transfer of the mortgage book.”
Responding via video link, Seema Malhotra MP said: “These [clauses] push for a fair deal, for the 250,000 mortgage prisoners, stuck for 10 years paying high interest rates.
“The All-Party Parliamentary Group on mortgage prisoners, which I co-chair, has been contacted by hundreds of mortgage prisoners, who describe the worry and the stress which comes from being trapped as they are.
“While the minister suggested that the SVRs paid by mortgage prisoners are just 0.4 per cent higher than SVRs at other lenders, our case studies, which include teachers, nurses, members of the armed forces and small businesspeople, tell another story.
“It is inappropriate to compare the rates of borrowers with inactive lenders that they’re currently paying to those paid by SVR customers at other lenders.
“If mortgage prisoners were with an active lender, and up to date with payments, they would have access to a product transfer giving them a lower fixed rate.”
Malhotra went on to give two examples from her Feltham and Heston constituents, the first of which had managed to switch, thus saving £5,000 a year, and the second a family whose Northern Rock mortgage had been sold to Cerberus Capital Management and were unable to switch.
“I cannot put into words the stress that this has caused the family, who have nearly lost their home more than once,” Malhotra said.
“Supporting these amendments provides immediate help to mortgage prisoners, who have suffered far too long and are now hit harder by the pandemic,” she concluded.
