Treasury Minister replies: 'Martin, I'll listen to your mortgage policy plans, but I've lines you can't cross'
The Economic Secretary to the Treasury, John Glen, has responded unsolicited to news that MoneySavingExpert.com founder Martin Lewis is funding academic research to try to find solutions to release 250,000 mortgage prisoners.
'Mortgage prisoners' are homeowners who are unfairly trapped on an expensive mortgage. Unable to switch away, they're often with inactive lenders which have no other mortgage products, or firms not authorised to offer new products.
A major new study at the London School of Economics and Political Science (LSE), aiming to find evidence-based policy solutions that the Government could use to unchain mortgage prisoners, is being funded by a £25,000 donation from Martin through his charitable foundation.
The plan is for the solutions to be presented to the Treasury. Minister John Glen has now written to Martin (see full letter) saying any proposals will be given "full consideration", but that any solutions must meet three "strict requirements". They must:
- Deliver value-for-money for the Government as well as individuals.
- Be a "fair use" of taxpayers' money.
- Deal with the risk of "moral hazard" – ie, address how it's decided that mortgage prisoners should receive financial support compared with other mortgage-holders and renters.
Separately, Conservative MP Kevin Hollinrake, who vice-chairs the All Party Parliamentary Group (APPG) on Mortgage Prisoners, has said he has met Prime Minister Boris Johnson to discuss the issue.
He says he highlighted the problem of non-UK and inactive lenders being subject to lower regulation, calling the system "grossly unfair" to borrowers – and the PM apparently promised to "level up" any imbalance to help mortgage prisoners.
Martin: 'We've heard good mood music from government – but this walls in solutions with strict constraints'
It was good to get a letter back from John Glen MP – he's clearly following the news with mortgage prisoners.
Though that's not to say I agree with it all. I believe the mortgage prisoners situation is intolerable and needs to be sorted quickly, whereas he represents the Government and has other wider interests to represent.
The most telling part of his response is where he sets out the three prime criteria that need to be met for any mortgage prisoner solution: that it delivers value for money for the Government, not just individuals; that it's a fair use of taxpayers' money; and that it addresses the risk of 'moral hazard'.
These are quite strict. And while there's good mood music coming out of the All Party Parliamentary Group on Mortgage Prisoners recently, these constraints show where those dealing directly with the Government sit.
I will of course be passing on these criteria to the LSE so that they can be added into any tests that are looked at for mortgage prisoners solutions. Though of course, we won't solely be constrained to its red lines.
The public and other policymakers also have a valuable contribution to make. So we will look at both its criteria but also other positive solutions even if the current government wouldn't consider them.
What do mortgage prisoners say?
In a statement responding to the letter, campaign group UK Mortgage Prisoners said: "We strongly disagree with John Glen's statement that those whose mortgages are with inactive and unregulated lenders are treated with the same consideration and fairness as those with FCA [Financial Conduct Authority]-regulated firms.
"We note that he rides roughshod over the fact that the first sales to inactive lender Cerberus do not enjoy the same protections that were afforded to those under subsequent sales.
"This has been a significant failure of government and has led to calls from the FCA for the regulatory perimeter to be extended. It means that those who were sold to active lenders are now being given access to lower rates, while those with inactive lenders have been unfairly trapped on high rates, with no recourse to the same options.
"We want one, fair and equal, standard regulatory framework and access to fair rates for all mortgage prisoners. We also want the sales of people's homes to inactive vultures stopped.
"We would further draw Mr Glen's attention to an article published yesterday by The Times, highlighting that government has profited to the tune of £5 billion from mortgage prisoners. The irony of this will not be missed on anyone who reads Mr Glen's suggestion that any solutions should offer value-for-money to government.
"We would like to acknowledge the efforts of Martin Lewis and thank him for personally financing the LSE study. It is right that government should be held to account by many stakeholders, although we would stress that solutions should not be further delayed for the sake of more research.
"We must also add that we are indebted to the APPG on Mortgage Prisoners and other supporters within Parliament, working tirelessly on our behalf, and look forward to continuing our work in moving forward towards our shared goals."
What are mortgage prisoners?
So-called mortgage prisoners are homeowners who are unable to remortgage to a cheaper deal with another lender because they don't meet strict borrowing criteria brought in after the 2008 financial crash – even though they're generally keeping up with repayments and would often be paying less if they switched. Many have told us of the emotional and physical impact of this situation.
MoneySavingExpert has been fighting mortgage prisoners' corner since 2015, and last year the FCA announced relaxed affordability checks for new customers who meet certain criteria and want to remortgage. But while it is working to do what it can within its authority, earlier this year it confirmed that lenders aren't interested in helping mortgage prisoners switch with the solution it's been able to offer.
MSE has repeatedly called for the Government to take action. In January, John Glen suggested the Government was open to extending regulation to help mortgage prisoners – but it seems no practical steps have been taken.
What does the minister's letter say?
Glen wrote to Martin earlier this month, and we've now been given permission to publish his full letter, which sets out his requirements for considering any proposals from the LSE study.
Glen, who is also City Minister, writes: "I am keen that your exercise is productive and does not simply end up raising false hope by outlining solutions that sound attractive but on closer inspection are either unworkable or unfair.
"My officials and I will take any new proposals under full consideration if they meet our strict requirements that they a) deliver value for money for government (not just individuals), b) are a fair use of taxpayer spending, and c) address any risks of moral hazard (eg, how to define who should receive financial support relative to other renters and mortgage borrowers).
"I look forward to seeing the proposals of LSE and I would welcome any work you could do with industry to help communicate the rule changes to these borrowers."
What is being done to help mortgage prisoners?
MoneySavingExpert is one of the organisations that has been fighting for justice for mortgage prisoners for several years through the route of seeking reform of regulation and laws. Here's a quick recap:
- In 2015, Martin met key figures in the EU, the Treasury and the FCA, which are the organisations responsible for UK mortgage regulation. He attempted to organise a summit between them to work out collectively who was responsible for the situation and how it could be fixed. Unfortunately, the summit didn't take place.
- In 2016, then Chancellor George Osborne wrote to mortgage lenders following a meeting with Martin about the plight of mortgage prisoners. However, Martin said the Chancellor's letter only addressed "a fraction of the problem".
- In May 2018, the FCA found 150,000 consumers in the UK were mortgage prisoners. MSE contributed to the regulator's discovery by suggesting and helping facilitate a survey of mortgage brokers. The survey backed up the regulator's findings from analysing mortgage data, and the FCA thanked MSE for its contribution.
The regulator said it was able to help 30,000 of the mortgage prisoners it identified, whose lenders the FCA could force to help. But the other 120,000 prisoners have had their mortgages bought by firms that aren't authorised to lend, and so the FCA has no power to make them do anything.
- In October 2018, Glen admitted that mortgage prisoners "need to be dealt with", at an event run by MoneySavingExpert at the Conservative Party Conference.
The minister also expressed agreement with Martin's call that an affordability check for someone with an existing mortgage – if it's at a cheaper rate and they're not borrowing more – should be: "Have you repaid and not defaulted?"
- In March 2019, the FCA launched a consultation detailing its solution to free mortgage prisoners. It proposed that lenders could choose to carry out a more "proportionate" affordability assessment for those who are up to date with their payments, aren't looking to borrow more and are looking for a better mortgage for their current home.
- In July 2019, MSE submitted its response to the FCA consultation, welcoming it, but calling for improvements. Crucially, MSE called on the Government to step in and help those mortgage prisoners beyond the reach of the regulator.
- In October 2019, the FCA removed some barriers that stop mortgage prisoners from finding a cheaper deal – though many will still be left trapped.
- In January 2020, FCA research found there were 250,000 people whose mortgages were with inactive or unregulated lenders. Of these, 170,000 were up to date with payments.
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