I rise to speak to amendment 8. I listened carefully to the Minister’s comments, and he has engaged across the House very frequently on this issue. I know this challenge is not of his making. It is not even of this Government’s making, but it is the responsibility of the Government of the day to solve it, because it is a problem of a Government’s making—indeed, it is of a Conservative Government’s, or coalition Government’s making. We are duty-bound to find a solution.
We have heard some very good speeches, including some very fine points about markets and intervention in markets. I am somebody who absolutely believes in markets. The markets have revolutionised my life and I have seen them revolutionise many others—how much wealth they create, how many jobs and opportunities they create, and what a great job they do for consumers in driving down prices and driving up service. But there is no market here. This is an extreme example of market
failure. Inactive lenders do not set their SVRs based on recruitment of new customers, which is what should happen in a marketplace. It is not defensible to say, “We cannot intervene in this way in terms of an SVR cap because it is an intervention in markets.” The two things are not compatible.
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The Economic Secretary to the Treasury set out an example of two similar customers and said that we should treat both customers the same. I absolutely agree with that principle. Let me just give him an example of how iniquitous this is. Louise Womble—I have permission to mention her—is a member of the UK Mortgage Prisoners action group. The group is led very ably by Rachel Neale, who has done fantastic work on this issue. Louise is with the regulated entity Landmark, an inactive lender that is owned by Cerberus. She is on a 5.19% mortgage with two years left on it. She is divorced; her husband left 10 years ago and paid nothing towards the mortgage. She has cancer. In two years’ time, because the inactive lenders will not renew or extend that mortgage—there is no requirement to do so—she will lose her home.
If Louise was with an active lender—assuming she was not in arrears, which I have no reason to suspect she is—she would be on something more like 2% or 2.5%, which is a huge difference compared with the payments that have been made over the last 10 or 12 years: something like £30,000 or £40,000. Of course, with an active lender, Louise would also be given the chance to stay in that property until perhaps she was in her 70s and then probably take an equity loan; she would not be forced out of her home. That is a massive difference when we are talking about two potentially identical borrowers. We cannot countenance that unfairness. I agree with the Minister about fairness and with his description of two identical borrowers, but we must also look at this example.
We created this problem. Of course others created it through irresponsible lending—Northern Rock, Bradford & Bingley and others—but we gave the job of disposing of those loan books to UK Asset Resolution. When it decided to dispose of the loan books—the first, I think, was back in 2016—to Cerberus, it took some reassurances from Cerberus that these people would be able to access new deals and fixed rates, and would even be able to take further advances. When that did not happen, UK Asset Resolution wrote to John McFall, the then Chair of the Treasury Committee, to say that it had clearly been misled, but that at the time it had had no reason to disbelieve Cerberus.
There were no doubt some very clever people looking after this at UK Asset Resolution, but that was pretty naive. I mean, I believe in business and that business is a force for good; nevertheless, to simply take it on trust that Cerberus would do the right thing by these borrowers was terribly naive. I think it was Charlie Munger, Warren Buffett’s right-hand man, who said:
“Show me the incentive and I will show you the outcome.”
Clearly, the incentive for Cerberus and the like is to extract maximum value from their portfolios without worrying about reputational risk.
Louise, who I was talking about earlier, is one of—I would guess—about half a million people who are affected. We talk about 250,000 people, but that is the number of mortgages or households, not people. All the people in the household are affected by the issue, so we are talking about a cohort of potentially up to 500,000 people. Of course, everybody is in a different situation, but the FCA’s analysis suggests that the current provisions and changes that we have made—I welcome any changes that will relieve some people from this situation—will only help between 2,000 and 14,000 people. Let us say that it is a mid-range of 8,000 people; we are probably looking at a maximum of 5% of the cohort, meaning that 95% of people in this situation will not be helped.
We are making things worse. We have just sold off another loan book; 89% of the people in that loan book are on 4.5% or greater and some are on over 5%. Again the iniquity continues.
The iniquity does not just apply to people who are up to date with payments. All this occurred because of the change in affordability rules following the global financial crisis. We said at that point that people had borrowed too much and that in future in order to access deals people would have to be on more modest borrowing and sensible affordability criteria. That was perfectly sensible.
We then realised, however, that lots of people would not be able to re-mortgage. The UK is unique in the western world—Andrew Bailey said this. Most of us are on fixed rates and that is how we keep our payment levels low. We realised that lots of people would not be able to access fixed rate deals, so the mortgage conduct of business rules were changed at that point, in 2012, to say, “If you are already borrowing, you are not in arrears and do not want any further monies, the affordability tests do not apply to you. If you are with an active lender you can refinance and continue on your fixed rate deal.” If you are with an active lender—not, of course, if you are with an inactive lender, because inactive lenders do not offer new mortgages and new fixed rates, even though we thought they would when we sold it off to them. It is one of those basic iniquities for people who are not in arrears.
It is also unfair to those who are in arrears. I know we say, “Well, if you are in arrears you would be in the same situation with an inactive lender as you are with an active lender”, but that is not the case. With an active lender, the rules are far more flexible. For example, they will let you capitalise the arrears, putting you out of arrears and then you can go to new deals. Of course, if you have been paying a lower amount, either through a fixed rate or a lower SVR, you will have lower arrears, so it is bound to be easier to move from a more expensive deal to a cheaper deal.
What we tried to do when we sold the loan books off was look after the public finances and who can argue that that is not the right thing to do? However, there has to be a balance between what is right for our public finances and what is effectively consumer detriment. Looking back, I wonder—the Minister was not about when this happened, of course—whether the balance was right. I feel that we got the balance entirely wrong.
The key is how we move forward. Some Members have said that the SVR cap is not the right thing to do. Comments have been made that this is a stop-gap. I do not think that anyone would argue that it is not anything
other than a stop-gap: it is a stop-gap until we get to a long-term solution that we all want to bring forward. If you are paying 5%, I doubt you would consider it a stop-gap to move down to 2% or 2.1%.
There is no doubt, however, that it is a nuclear option. When we have talked about it in the all-party group, we have always said it is a nuclear option to try to precipitate a good response, either from regulators, lenders or the Treasury to resolve the problem. Yes, it is a nuclear option, but it is also brutally simple and very effective at solving lots of problems.
I can, of course, see the arguments why not. It may be that foreign investors would, to coin a phrase, regard us as an unreliable boyfriend if we sold off the loan book and then restricted the rates that could be charged on that loan book. I am very reassured by the conversations I have had today with the Treasury, including with the Economic Secretary and the Chancellor, and by the determination and renewed effort to find a solution. They have shown a willingness to be innovative in the past with things such as the recently rolled out mortgage guarantee scheme, so I am willing to take on trust that the Minister will work with me and other stakeholders, such as the UK Mortgage Prisoners action group, to find a holistic solution that works for borrowers with inactive lenders and active lenders, and that we can bring forward solutions as quickly as possible.
On that basis, I am happy not to support the amendment and not to vote with the Government. This is the closest I have been, in six years doing this job, to voting against the Government. Nevertheless, I am reassured by the conversations I have had with the Minister and am willing to work with him to try to make sure that we can find solutions, as rapidly as possible, to solve the plight of many tens of thousands or even hundreds of thousands of people.