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SVR cap for mortgage prisoners withdrawn in House of Lords

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Written by: Liz Bury and Owain Thomas
11/03/2021
A proposal to cap the standard variable rates (SVRs) for mortgage prisoners trapped on closed books has been withdrawn.

Withdrawing the proposal is a blow to hard-hit mortgage prisoners but its originator Labour peer Lord Stevenson warned the government he would reintroduce it if there was not swift progress.

The move came after a Lords committee debate which included two other amendments to the Financial Services Bill that are designed to bring relief to the mortgage prisoners.

These were to address the availability of transfers to mainstream market deals, and to prevent more people becoming trapped by requiring borrowers’ consent before their mortgage is sold to an inactive or unregulated entity.

‘We need convincing’

Cabinet Office minister Lord True argued that comparisons made between SVRs faced by mortgage prisoners compared to those in the market were “often inappropriate”.

“I hope that noble Lords will appreciate that this is a complex topic. We are, as I have said, committed to finding practical ways to help,” he added.

In withdrawing the amendment, Lord Stevenson argued “this is more than just a complicated problem which needs to be bottomed out by working with the market.”

And he warned that action needed to be taken quickly by the government to address the situation.

“We need convincing that there is work going on that will result in a workable solution of benefit to those affected by this within a reasonable timescale, otherwise we will come back… in a way that makes it clear that the government cannot continue to let this settle itself,” Lord Stephenson continued.

“It has to be taken forward in policy terms otherwise too much damage will be caused.”

‘Shameful episode’

During the debate Lord Stevenson called it a “shameful episode”.

He was supported by Liberal Democrat peer Lord Sharkey, joint chair of the All-Party Parliamentary Group on Mortgage Prisoners, who spoke for all three amendments.

“Mortgage prisoners exist almost entirely because the Treasury made a terrible mistake when it sold the first tranche of former Northern Rock and Bradford & Bingley to unregulated American vulture fund Cerberus.

“The government has got the Financial Conduct Authority (FCA) to change affordability tests to let them switch to another lender, but only a very small number of lenders are willing to use the new flexibilities.

“The government created the problem of mortgage prisoners and it is their moral responsibility to rescue them from the significant decrement many still face,” he said.

However, Conservative peer Baroness Noakes argued against further market interventions.

“These amendments seek to go beyond what has already been achieved for mortgage prisoners by relaxation of affordability rules by the FCA.

“I have much sympathy for mortgage prisoners, but we should not lose sight of the fact these borrowers do not have sufficient financial credentials to qualify for new mortgage lending under currently regulatory rules and hence cannot remortgage.

“They are a hangover from a period when lending criteria were much less strict than they are now, and include interest-only borrowers who lack a credible way for repaying capital. We should be wary of going beyond what the FCA has already done.

“In particular, making the FCA specify maximum interest rates is, in my view, an unwarranted market intervention.

“The FCA is best placed to judge whether any solutions can be found for these problem borrowers. We should not try to solve the problems of a relatively small number of people with blunderbuss legislation. I cannot support any amendments in this group.”

Result of government action

But Liberal Democrat Baroness Kramer critiqued Baroness Noakes’ response, noting much of their financial insecurity was as a result of being made mortgage prisoners by Conservative governments.

“These are people the overwhelming majority of whom would not have any problem with their debt if they had been allowed to take advantage of the changes in interest rates and mortgage terms that have been available much more widely,” she said.

“The case to act for their protection is simply overwhelming. If we had not had the financial crash and they had remained with regulated lenders, the vast majority of them would not be facing any issue.

“They would have had their mortgages restructured to lower rates and they would not be facing stresses and strains today.”

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