Charlie Elphicke is a member of the Treasury Select Committee and is MP for Dover & Deal.
Today I’m presenting a bill to Parliament to secure a fairer deal for borrowers. And to set the mortgage prisoners free. Mortgage prisoners are people who have become trapped by changes in mortgage regulation following the financial crash. They are stuck in expensive mortgages and unable to remortgage to get a better deal. The new regulations say they can’t afford payments on a mortgage at say two per cent, so they are forced to continue with a mortgage paying five per cent or more. It’s plainly absurd and unfair.
It is estimated there are up to 200,000 mortgage prisoners in the UK today. Some 200,000 families left stranded by changes in regulation. In so many cases they struggle to get by, finding it hard to meet expensive payments to keep a roof over their heads.
Take the example of Charlotte, who is 39 years old. Charlotte lives in the West Midlands with her husband. They took out a Northern Rock mortgage in 2007. In 2010, she had twins who suffer from serious disabilities – both are wheelchair bound. They’ve never missed a single mortgage payment. But they cannot remortgage due to the regulators’ affordability test. She says, “How can we not afford to pay less”? Indeed. And why does this matter to Charlotte and her family? With a new mortgage they could pay so much less – and afford more therapies for her sick children, rather than having to fundraise.
The struggle to service these high interest payments is one thing. The fear of interest rates rising in the future is quite another. Jayne is 50, she took out a Northern Rock mortgage in 2007. She was on a five year tracker mortgage half a percent above base rate. Her mortgage has since been sold to Cerberus by the Treasury.
At the weekend, a Mail on Sunday investigation referred to Cerberus as a “hound from hell vulture fund”. Jayne is now paying nearly five per cent interest on a variable rate. She cannot get a fixed rate. Jayne worries about how she might afford to pay if rates go up. She cannot go elsewhere because she is self-employed – so her income fluctuates meaning she fails “affordability” to be able to have a new mortgage with lower payments. This is despite the fact that she has made all her mortgage payments and the loan to value of her home is just 50 per cent. Jayne’s mortgage costs her some £4,000 more a year than it would if she was not a mortgage prisoner.
These cases – and many others beside – highlight the situation Britain’s mortgage prisoners find themselves in. The Government should be lending a helping hand, not a tin ear. The Treasury should not be selling mortgages off to vulture funds like Cerberus without protection. The regulators should be doing their bit to help free the mortgage prisoners.
There has been some change. The FCA plans helps for people who are up-to-date with payments. But there is a big problem. The FCA’s proposals only give lenders the option – they would not be introducing a requirement. It’s also welcome that in July last year, UK Finance – the banks’ trade association – launched a voluntary agreement, in which lenders committed to support existing mortgage prisoners to switch to an alternative product at their present lender. Yet this doesn’t help people switch from the vulture funds or lenders who don’t lend anymore.
So how can the mortgage prisoners be freed? These mortgages were taken out many years ago – 2007 and before. Well before the post-crash affordability rules and other regulatory changes came in. These borrowers have proven their ability to pay for over a decade by making their mortgage payments. Given this, it makes no sense to have a computer driven affordability test that ignores what’s been happening in the real world. The Treasury and the regulators at the FCA need to move past “computer says no” to “reality says yes”.
What should happen is that these borrowers should be treated as grandfathered against the later regulatory rules that came in. Banks should be required by the FCA to offer mortgage prisoners a decent deal and treat them as grandfathered – whether they are an existing customer or not – and the new mortgages should be permitted without any regulatory penalty for the bank they move to.
The Treasury needs to take responsibility, too. The Treasury has been selling Northern Rock’s loan book to funds like Cerberus. When selling these books they should make sure there are protections so that borrowers do not lose out. It is wrong for the Treasury to have allowed borrowers to be placed in a worse position than would otherwise have been the case.
This is an issue the Government should be acting upon. We all know that capitalism is vital to the success of our economy and is a cornerstone of our way of life. Yet as Conservatives we also know that capitalism must be tempered by responsibility and fairness. We want people who work hard to be able to enjoy success. Yet we will not tolerate people being taken advantage of or unfairly losing out. That is why we need to forge a new covenant to deliver greater fairness for borrowers and set the mortgage prisoners free.