Greg Wright: Why the regulators must outlaw sale of debt to unregulated lenders

Britain is paralysed by the Government’s failure to plot a clear course towards Brexit, but old wounds have still to heal, even if they remain hidden.

The innocent victims of the bankers’ greed and folly are still crying out for justice. Britain’s mortgage prisoners have particular reason to feel let down by the regulators and financial services sector, although a committed band of MPs is still fighting their corner.

The mortgage prisoners are trapped into paying higher rates of interest to their borrower because they cannot meet affordability tests, brought in after the financial crisis, despite making payments on their current, higher interest rate mortgage.

This has caused particular problems for borrowers who have found their debt sold on to unregulated private equity firms that do not offer new mortgages or more affordable rates.

They include Jayne Emsley from Pontefract, who took out a mortgage with Northern Rock in 2006. Northern Rock was nationalised at the height of the financial crisis in 2008 and held by a Government body known as UK Asset Resolution (UKAR). The sale of its assets to Cerberus for £13.3bn in 2015 was the biggest of its kind by the UK Government.

Ms Emsley, who had originally taken out a five-year tracker mortgage with Northern Rock in 2006, saw her mortgage payments double overnight in 2011. Ms Emsley is among a growing number of campaigners who would like the Government to expand the Financial Conduct Authority’s remit to cover unregulated purchasers of mortgages.

She added: “I tried to re-borrow at a better rate but, despite my exemplary record, and years of hard work, we were told no’.

“We are paying through the nose for a mortgage we are trapped in because a bank got into trouble.

“We pay our bills on time every time. I have never missed a mortgage payment. I struggle so much to feed my family some weeks.”

According to the All Party Parliamentary Group on Fair Business Banking (APPG), there are an estimated 200,000 mortgage prisoners across the UK who are trapped with inactive and unregulated lenders and are unable to take advantage of historically low interest rates.

In the SME (small and medium-sized enterprise) lending market, businesses that have had their debt sold on to “vulture funds’” are exposed to forced financial distress and unscrupulous asset stripping, according to the MPs.

Martin Whitfield MP, the vice-chairman of the APPG, has described the sale of debt to these funds as a systemic failure to effectively protect consumers and businesses from predatory practices of unregulated firms.

He added: “There must now be collaborative action from the regulators and government to find a solution to help these individuals and SMEs across the UK.”

The Financial Conduct Authority (FCA) has offered a glimmer of hope. The FCA said that mortgage customers who had previously been unable to switch mortgages despite being up-to-date with their payments, could soon be able to find a cheaper deal.

The FCA said it is seeking to speed up more widespread participation by lenders in “tools to help customers more easily identify what mortgages they qualify for”.

Christopher Woolard, of the FCA said: “The FCA is particularly concerned about customers of inactive lenders and entities not authorised for mortgage lending as they are unable to move to a new deal with their existing lender.

“To ensure these customers are made aware of this change, inactive lenders and administrators of entities not authorised for mortgage lending will be required to review their customer books to identify and contact eligible customers.”

This is a step in the right direction, but it does not go far enough. Regulators must follow the advice of Kevin Hollinrake, the co-chairman of the APPG, who is demanding that the FCA outlaws the sale of debt to unregulated and inactive lenders. It could save hundreds of thousands of people from further misery.