Mortgage Prisoners and Cerberus

I was also fortunate earlier today to be able to speak in the debate on 'mortgage prisoners', those trapped in a higher rate of interest than the current norm partly because the institutions with which they were mortgaged, such as Northern Rock, failed in the financial crisis and they are unable to move to a different lender.  A number of my constituents have been or are in this situation, and for them it is a deeply frustrating and distressing state of affairs.

I know the Government and the Financial Conduct Authority already agree that action is required, so this debate was really a matter of encouraging both to move a bit faster towards providing a binding solution.  

3.03 pm


Bill Grant (Ayr, Carrick and Cumnock)


It is a pleasure to follow the hon. Member for Bethnal Green and Bow (Rushanara Ali), and I congratulate my hon. Friend the Member for Dover (Charlie Elphicke) on securing this important debate. I know he feels strongly about this issue, and I understand that his ten-minute rule Bill has been taken up by the Government. This is an emotive topic for nearly 200,000 of our constituents who find themselves trapped with an unaffordable mortgage, in many cases simply because they happened to be mortgaged to a financial institution that foundered during the financial crisis. The majority, although not all, were with Northern Rock or Bradford & Bingley.


For the most part, those families did everything correctly. They saved for their future and made every mortgage payment on time, yet they remain trapped with interest rates of around 5%. They are unable to transfer their mortgage to a more reasonable and current percentage rate of 2% because that is, bizarrely, deemed unaffordable by lenders as a result of responsible lending rules brought about by that same financial crisis—an unhappy and unfortunate irony.


I was very surprised to learn that regulated mortgages could be sold on to unregulated funds overseas, such as Cerberus, which we heard about earlier and is based in the United States. In addition to mortgage prisoners, the issue also affects those who have loans. A family in my constituency had two tailored business loans with the Clydesdale Bank, a reputable name with a sense of security, which they took out in 2011. The Clydesdale subsequently sold the loans, which involved significant sums, to Cerberus. If I may, I would like to quote from my constituent:


“Communications received from Cerberus and those responsible for managing our loan on their behalf, were very confusing, with letters being received from various sources: Henrico Ltd, Engage ​Commercial, Pepper UK Ltd and Cerberus European Servicing Ltd. There was a complex web of names and numbers and it was impossible to get anyone to answer any queries. Emails were not replied to. One letter intimated our interest was to be a staggering 29%, causing us considerable alarm. It was unclear whether, legally, we needed to pay interest or repayments to Cerberus. We calculated monthly interest payments and paid them to”—


wait for it—


“Thames Collections Ltd. There was considerable anxiety on our part as to whether even a few pence short payment might be used as an excuse to put us into administration.”


Joanna Cherry


The hon. Gentleman’s constituents’ experience with Cerberus reflects the experience of my constituents, the Neaves. They had a friend’s accountant look at the papers. That person identified overcharging in the region of £75,000 in interest and charges, but they have just not been able to do anything about that. As I say, they have been bankrupted.


Bill Grant


I thank the hon. and learned Lady for that intervention. I regret the journey her constituents had. Fortunately, while it was a very dark journey for my constituents, the result was not as catastrophic, but these are serious matters. As has been said in this Chamber, small business people are the backbone of Britain and they need our support.


The family’s fear was about putting the company into administration to gain access to their assets—assets that were greater than the value of the loan. As I said, there was a reasonable outcome. Eventually, the family, through their own diligence, were fortunate enough to be able to escape and move to another bank. The effect that dealing with this company had on their business and day-to-day lives is still very raw. Yet for more mortgage prisoners, it remains an ongoing concern.


I welcome to a degree the fact that the Financial Conduct Authority is taking this issue seriously—not before time. In March, it launched a consultation on rule changes that would allow mortgage prisoners to move to a better deal. I understand that the consultation closes on 26 June and I encourage anybody in this situation to respond to it. It is also clear that the Treasury is in agreement with the FCA’s stance, with the Economic Secretary to the Treasury, my hon. Friend the Member for Salisbury (John Glen), confirming in a written question earlier this year that


“HM Treasury welcomes the FCA’s announcement that it intends to change its mortgage lending rules to move to an affordability assessment for customers seeking to switch to a cheaper mortgage without borrowing more”.


That is encouraging, but sadly it does not include an obligation for it to do so.


With a consensus in Parliament, positive action from the regulator and indeed Government support, one might wonder why there is even a need for this debate. It is simply that the issue has gone on for far too long, has caused too much stress, grief and misery for our constituents throughout the UK, and can be so obviously resolved that it must not be allowed to persist much longer.


I urge the FCA and the Government to act swiftly and provide a binding solution that will extricate our constituents from this unsatisfactory situation. We can free the mortgage prisoners. If I may, I would like to borrow a small phrase from the British Transport police, “See it, say it, sorted”. We have seen it and we have said it. Sort it.​