Regulation of Financial Services (Land Transactions) Bill

The hon. Member for Cities of London and Westminster (Mr. Field) has said essentially what I wanted to say. This Bill has been well managed in an harmonious spirit and on the basis of great consensus, both on Second Reading and in Committee, where my hon. Friend the Member for Richmond Park (Susan Kramer) represented my colleagues and me. I thank the Economic Secretary for referring at some length to regulatory costs, which were my main concern. He made the entirely valid point that what is relevant here is not so much the Government’s activities as those of the Financial Services Authority. I hope that the FSA has heard our concerns, and that it will take them properly into account in drafting the regulations that will flow from this legislation. The Economic Secretary also made the valid point that the danger with consensual legislation is that things can slip through the cracks. I want to mention a couple of cases where that might have happened, one of which could be quite serious and relates to the ijara proposals. It is clearly too late to introduce amendments, but it is worth flagging up these issues so that the Government can reflect on them before the Bill proceeds to the other place. There were three basic motives behind the Government’s decision to introduce legislation on home equity release schemes: consumer protection; raising confidence in products, so that the market can expand; and creating a level playing field to prevent what the experts call regulatory arbitrage—in other words, preventing capital from flowing from regulated products into unregulated ones, because the costs associated with the latter are lower. On Second Reading, I asked whether this legislation should cover areas that appear to have been excluded from such regulation and from mortgage regulation, such as buy-to-let properties. Having subsequently discussed this issue with bodies such as the Council of Mortgage Lenders, I have been persuaded that doing so would not be appropriate and that the Government were right to exclude them. However, those bodies also referred to a gap in mortgage regulation that might well lead to regulatory arbitrage. This problem relates to property investment clubs, which are rather different from buy-to-let schemes, in that they do not involve conventional professional landlord management relationships. We are talking about people who are looking to make speculative gains out of housing equity, and in many cases they are driven by the same motives as those that underpin the transactions with which this legislation deals. There is undoubtedly a great deal of abuse of consumers. Some of us will be familiar with the glossy leaflets distributed in our constituencies, advising people to ring a strange telephone number—no address is given—and to turn up to a meeting, where they will then be briefed on how to make themselves very rich by entering into particular property transactions. A good deal of money is undoubtedly being teased out of people in the form of, for example, hidden charges. I understand that the Department of Trade and Industry has used existing regulation to crack down on a couple of such schemes. I ask the Minister to consider whether it might be sensible to cover them with a relatively modest enlargement of the scope of the Bill when it goes to the other place. My other point is more serious and relates to the provisions governing ijara finance. We all welcome the idea of creating a form of finance that our Muslim constituents can use comfortably because it meets their religious as well as market requirements. It is an eminently sensible idea and we all rush forward to endorse it. People in the property business and, more particularly, in the Law Society have pointed out, however, that we may be unwittingly creating problems for many of those families by encouraging them to take ijara mortgages without adequate legal protection. The nature of ijara transactions generally means that the property remains in the ownership of the lender. A person who would normally be a mortgagee is, in fact, a tenant—an assured tenant, but the person who is acquiring the house through ijara finance is not the owner of the house. The equivalent of the mortgage lender is the owner, which presents two serious problems. First, the occupant of the house is in a much weaker position in respect of disputes over arrears. Under the Housing Act 1988, the lender or owner of the property could evict after two months of arrears, whereas under conventional mortgage arrangements, the mortgagee has security of tenure. In those circumstances it is a matter for a court and a court order has to be obtained. The ijara borrower is therefore in a much weaker position than the conventional mortgage borrower. Secondly, another difficulty applies either when someone wants to pay off their obligations or to foreclose. Under a conventional mortgage, the mortgagee is protected in that the mortgage lender is obliged by law to secure the best possible price and to make available, if he sells the property, a full account of the transactions. Under an ijara arrangement, however, the provider has no such obligation. According to lawyers, we could unwittingly place people who undertake ijara transactions for perfectly good reasons in a very weak legal position with respect to the providers of those products. I ask the Minister to consider, as the Bill proceeds to the other place, whether a couple of legislative changes could be made. I am not in a position—this is not the proper context—to draft amendments, but I hope that the Minister will at least reflect on the idea of making a couple of changes to protect the many people who may want to take advantage of the provisions. One change could provide that any contract for funding under an ijara scheme should allow the party receiving those funds to repay them at any time during the term of the arrangement. The other could ensure that the party receiving the funds had the same protection as that afforded to a mortgagor on realisation of security by a mortgage. These are technical and legal points, which I ask the Minister to reflect on. They are mentioned in the spirit of attempting, at this late stage, further to improve a Bill that we strongly support in principle.