The People’s Mortgage represents “the only real solution,” to mortgage prisoners’ woes, says Birkett (pictured), who’s been working to find ways to release the prisoners during the past year.
The product will be offered by JustUs, which is a trading style of Birkett’s latest venture eMoneyHub, a P2P technology platform.
The eMoneyHub platform fuels JustUs, a UK and European Union (EU) debt platform, as well as global P2P crypto platform, Moneybrain.com.
“The People’s Mortgage has been designed to accommodate mortgage prisoners and others excluded from mainstream mortgages,” Birkett says.
“We are the only real solution, and with the cladding scandal and people on furlough, the excluded mortgage market now counts two to four million people,” he says.
Product details ‘TBA’
Birkett’s latest venture is currently stepping through the process of gaining Financial Conduct Authority (FCA) regulatory approvals to offer the crowd-funded homeowner mortgages.
The JustUs crowdfunding platform already serves personal loans, bridging loans and buy-to-let mortgages.
The People’s Mortgage will be a five-year fixed rate product at 2.5 per cent. According to Birkett’s current estimate of the time needed to gain approvals, the product launch is pencilled in for Q4 2021.
“The product is designed to accommodate the millions of people excluded from the mainstream market – mortgage prisoners, and groups like the self-employed, retirees and people with historical credit problems,” Birkett said.
There will be no redemption penalties, a one-page mortgage switch process, and “commonsense underwriting,” he said. Product details, like the term of the mortgage, loan to values, maximum and minimum loan sizes, and product fees, are “to be advised.”
“We will take a commonsense approach. If the person is up-to-date and has made mortgage payments for the last twelve months – say £1,000 a month at 4.75 per cent, affording £600 at 2.5 per cent. . . We will take full advantage of the straight switch affordability rules now in place from the FCA.”
Last year, JustUs sought an exemption from full homeowner residential mortgage lender regulation for the People’s Mortgage. “They could quite easily, with the stroke of a pen, make P2P mortgages exempt. They haven’t got their head around the fact we’re not a lender — it’s a crowd-funded mortgage,” Birkett said.
But the FCA and Treasury refused.
“We’ll have to incur additional compliance and cost, which we were wanting to avoid,” Birkett added.
Rollercoaster career
Many in the industry will be familiar with Birkett’s backstory. He established Prestbury in 1993 selling mortgages and personal loans in the North West, after a motorcycle accident left him unable to continue in his job at the time.
His rollercoaster career saw him rise to chief executive of AIM-listed Prestbury Financial at the age of 31, only to lose it all five years later when the company went into liquidation in 2008.
The online broker network was the UK’s third-biggest network at the time.
About 140 Prestbury advisers were transferred to Personal Touch Financial Services (PTFS) in a sale of the business. The PLC shell company was wound up in December 2008.
Making a comeback
Now Birkett is making a comeback with a mixture of backers including the crowd, venture capital and a government grant. eMoneyHub raised £1.2m this year, with £600k from Manchester Venture Partners, with the same sum matched by the government’s Future Fund.
The deal was then offered to investors on Crowdcube, bringing the total raised to £1.3m. “We are also, within the next month or so, doing a follow on equity round,” Birkett adds.
He says crowdfunded lending has the potential to disrupt the mortgage market, including unlocking the growing numbers excluded from conventional mortgage products.
He said: “There’s a desperate need from people excluded from mortgages.
“The mortgages would not be restricted to mortgage prisoners, but the biggest demand and need today is the mortgage prisoners, because they have been paying sometimes double what they should be for the past 10 years.”
“We’re the digital equivalent of a building society, taking money in savings deposits and lending it to borrowers. We can take money at scale from the people.”
“Since Covid, mortgage prisoners are into their millions,” Birkett said.
The group had hoped for a House of Commons vote in favour of an amendment to the Financial Services Bill which would have capped the standard variable rate (SVR) on their mortgages.
The BBC reported on Monday that government was whipping Conservative MPs to vote down the amendment, which they did.
The borrowers became trapped on mortgages when government bailed out lenders following the financial crisis and then sold the loan books to venture capital funds.
Government has argued the latest proposed measure to help them would represent a destabilising intervention into the mortgage market.
The Mortgage Prisoners Action Group (MPAG) said its members have been made to “pay for the iniquity of regulated banks in 2008,” and further, had their characters attacked by politicians.
MPAG said: “We feel utterly disappointed, distressed and betrayed that the government has failed to include amendment 8 to the Financial Services Bill.”
“The measure would have provided immediate relief and significantly changed the lives of mortgage prisoners who have faced over a decade of financial and emotional misery.”
The group singled out economic secretary to the Treasury, John Glen, for the “continued and tactical demonisation of mortgage prisoners”.
The proposed amendment was voted for by the House of Lords earlier this month.
The amendment was passed in the House of Lords nearly two weeks ago and would have allowed the government to set a maximum SVR for borrowers who were tied to inactive or unregulated lenders.
The cap would have been two per cent above the Bank of England’s base rate.
However, despite various MPs saying they were in favour of the amendment in Parliament, the majority voted to disagree with the measure.
The number of Conservative MPs following the whip voting to scrap the amendment totaled 355, while 195 Labour MPs voted in favour in conjunction with 72 MPs from other parties.
‘Sticking a plaster’ on the problem
Anthony Browne, Conservative MP for South Cambridgeshire said during the debate: “We agree that we need to help these people, but the question is: how do we do that? The cap of interest rates is, as people say, a sticking plaster—even its supporters say that. I can see the appeal of it, but this sticking plaster comes at great cost: Parliament would be setting out interest rates in primary legislation.
“That could lead to huge unintended consequences in lots of ways—for example, through the impact on financial stability that we heard about earlier on some of the firms. It would also set an extraordinary precedent, with the government doing price controls in that way.”
He added: “It is also really not the solution we need. Where someone is trapped in a horrible prison with their guards abusing them and they are very uncomfortable, would they want that prison to be made more comfortable and the guards to behave themselves, as this cap in effect proposes, or would they want to get out of the prison?
“They would want to get out of the prison. We need to make sure that mortgage prisoners can move to other mortgage providers.”
Lead campaigner Rachel Neale said capping the SVR to two per cent above the Bank of England’s base rate would be a short-term resolve for mortgage prisoners paying high rates on closed book loans.
She said: “This is a real stop gap solution that until the government come back with a practical solution, either a mortgage-backed guarantee scheme like they’ve done with the first-time buyers or something like that will give us practical help.”
Although she claimed that Conservative MPs had been instructed to vote down the amendment, Neale said passing it would be the government’s chance to correct issues of the past.
Neale said: “Today could be an opportunity for the government to right the wrongs of the past. It would make a huge difference to people’s lives, those who are mortgage prisoners.
“We don’t think from the noises that we’ve heard that the government are going to go for it, they’re going to try to block it. But it would also hopefully be given an opportunity to go back to the Lords where it will keep ping ponging.”
Neale said she did not want another consultation or report to be opened into the mortgage prisoner situation as that would push the problem further down the road.
However, she suggested if the government continued to not be forthcoming with a solution, the group would look into opening up a public inquiry alongside its litigation with Harcus Parker.
Targeted intervention
Seema Malhotra MP and co-chair of the All-Party Parliamentary Group (APPG) on Mortgage Prisoners said she hoped the amendment would be voted in.
She added: “It will help and give relief to mortgage prisoners, and the campaign is growing in support with Martin Lewis and in Parliament.”
Malhotra said the government needed to produce an alternative to the cap if it was voted against and collaboration with borrowers, industry bodies and regulators would be needed for a solution.
She said: “We’re going to need to have something that is at least a good stop gap if other detailed solutions need to be worked up. Solutions have not been coming through fast enough.
“An SVR cap on closed book mortgages which is a targeted intervention is now essential to protect these mortgage prisoners.”
This afternoon, MPs will debate the amendment which has gone back and forth between the House of Lords and Commons in Parliament.
Earlier this month, Lords voted in favour of the cap which if passed, will be applied to two and five-year mortgage terms.
To be eligible, mortgage prisoners must adhere to certain requirements such as being up to date with payments and having a remaining mortgage term of two years or more.
This must apply to two and five-year mortgage terms and be no more than two percentage points above the Bank of England base rate.
The amendment requires the Financial Conduct Authority (FCA) to make this a rule so affected borrowers can access new fixed rates equal to or lower than the rate specified by the regulator.
To be eligible, mortgage prisoners must adhere to certain requirements such as being up to date with payments and having a remaining mortgage term of two years or more.
Speaking yesterday, Lord Sharkey, co-chair of the All Party Parliamentary Group for mortgage prisoners, said: “Solving the mortgage prisoner problem certainly requires reducing this usurious SVR, but it also requires giving the mortgage prisoners access to normal fixed-rate mortgage deals.
“I regret to say that there has been no real progress in either of these areas.
“This amendment takes a simpler and non-prescriptive approach. It places the obligation to fix the problem squarely on those who caused it — the Treasury.”
The bill will go through a report stage on Monday where MPs can consider any changes if needed. It will then go through a third reading in the House of Lords soon afterwards.
UK Mortgage Prisoners released a statement, saying: “The successful vote has brought immense relief to our members with renewed hope that their plight might finally be resolved.
“Implementing an SVR cap for closed book, inactive entities will bring an immediate end to the emotional, mental, and financial hardship and economic immobility that mortgage prisoners have faced for over a decade.”
Reintroducing amendment
Lord Stephenson withdrew the amendment in March after a previous debate on the same bill, but warned the government he would reintroduce it if there was not swift progress.
At the time he said: “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.”
The call came ahead of a House of Lords debate on amendments to the Financial Services Bill, which would enable such a cap.
However, the debate on 8 March ran late and did not reach the relevant amendment 99, tabled by Lord Stevenson. It’s expected to be rescheduled.
MPAG rebuffed concerns raised in previous debates that an SVR cap would result in structural changes to the mortgage market.
Its report, ‘UK Mortgage Prisoners: Setting the Record Straight’, published to coincide with the Lords session, stated: “This is a targeted cap that will help all borrowers in particular and specific closed books which are a legacy of the global financial crisis.”
MPAG also asked for a government-backed mortgage to help prisoners transition to the mainstream market.
The group’s research showed that mortgage prisoners pay on average a 1.33 per cent higher interest rate than the market SVR. The highest recorded rate was 13.5 per cent.
It stated that affordability criteria introduced by the Financial Conduct Authority helped only 40 out of 250,000 prisoners – and not 125,000 as Treasury has said.
Martin Lewis, consumer finance expert, said: “The independent London School of Economics report, which I funded, has a cogent argument as to why an SVR cap isn’t a balanced long-term solution. Yet, in lieu of anything else, I believe for those on closed-book mortgages, it is a good stopgap while other detailed solutions are worked up.”
Regulatory blindness
The Lords debate did cover amendment 127, tabled by Lord Leigh, which would prohibit the sale of mortgage loan books from authorised to non-authorised entities.
Leigh said: “The phrase ‘mortgage prisoners’ is exactly right, as thousands of people find themselves in such a situation through no fault of their own.
“It seems an extraordinary loophole that a whole book can go from an authorised to a non-authorised entity with, apparently, not a single regulatory eyebrow being raised,” he added.
The three amendments to the Financial Services Bill brought this week would have given the Financial Conduct Authority (FCA) wider oversight of the mortgage market, capped standard variable rates for trapped borrowers, and given borrowers the chance to block the sale of their mortgage to another lender.
Economic secretary to the Treasury John Glen has drawn the ire of campaigners after speaking against all three measures in the debate this week and offering no alternatives.
He also said it would be “disproportionate to support a small number of borrowers” with the moves.
Figures used by Glen in the House of Commons were disputed by other MPs and have since been further criticised by mortgage prisoner campaigners.
The campaigners also condemned some of Glen’s language noting it was “unconscionable” that a minister was choosing to blame mortgage prisoners for the situation they were trapped in.
Glen has been a source of frustration for mortgage prisoners for several years as despite meeting with representatives he has taken little action to remedy the situation and blocked almost every suggestion.
No analysis of impact
“The most significant error in the minister’s claims is that we are dealing with high-risk loans, an assumption used to dismiss the SVR cap,” a statement from the UK Mortgage Prisoners action group said.
“Mortgage prisoners are widely reported as high-risk, but until now there has been no analysis of the impact that these borrowers’ time as mortgage prisoners had on their financial situation.
They also criticised Treasury for its role in the crisis and lack of action.
“Critically, the Treasury refuses to take responsibility for the debilitating effect its actions have had on mortgage prisoners. This ‘complex problem’ the minister states, has been caused by the Treasury,” the group continued.
“Until they face up to their responsibilities and accept that it is due to their past actions that mortgage prisoners are in this position any substantial solutions will be meaningless.
“We are sick and tired of hearing the minister try and shift blame onto us. It is shameful behaviour.”
Figures questioned
Speaking in Parliament, Glen claimed 120,000 of the estimated 250,000 mortgage prisoners had already been helped by the FCA’s move to permit a modified affordability assessment.
However, the FCA itself warned at the time of launch that the measure was only likely to help at most about 14,000 borrowers.
This was echoed by campaigners who said up until this point only a handful of mortgage prisoners have been helped in the UK Mortgage Prisoners group.
“Mortgage brokers contacted by the campaign group say they cannot help either because they never received a letter from their closed book owner or because after nine years being trapped paying eye-watering rates they no longer pass high street lending criteria,” the group said.
“UK Mortgage Prisoners members have anonymously stated that this amendment is the difference between feeding their children, themselves, or continuing to rely on food banks.
“It now begs the question, why won’t John Glen take action to undo the unforgivable actions from HM Treasury in selling these loans in the first place and finally free mortgage prisoners?”
SVR cap would not hit securities market
Glen had dismissed the idea of a cap on standard variable rates last year.
In Parliament he said he was “committed to finding practical ways to help” but added that he was afraid the new clauses risked a number of unintended consequences.
He also argued it “would be disproportionate to support a small number of borrowers, as it would be likely to have an impact across the whole of the mortgage market and in the worst case could damage financial stability”.
However, this was disputed by MPs from both sides of the House of Commons.
Speaking about the cap on SVRs for mortgage prisoners, fellow Conservative MP Kevin Holinrake said: “The evidence that we have says that it would not affect the marketplace of residential mortgage-backed securities, about which the minister is concerned; that it would be highly effective; that we could define it for a certain cohort; and that it would relieve hundreds of thousands of people from dire financial straits overnight.”
FCA back-tracking
The FCA has also previously added to the calls for it to be given greater oversight of the mortgage market to help the mortgage prisoners.
In his select committee hearing last year FCA chief executive Nikhil Rathi said supporting mortgage prisoners would be ‘a priority’.
Prior to that then-FCA chief executive Andrew Bailey also called for wider regulation of mortgage lending by the FCA to give support to the mortgage prisoners.
And in 2019 the FCA said: “In our view, there is a case for extending the regulatory perimeter to capture all mortgage loans. This would leave us better able to influence market behaviour through a combination of our Principles and rules.”
However, in a statement published in July, the regulator appeared to step back from its demand to extend its regulatory reach and said instead this was a matter for Treasury and Parliament. It repeated this in its regulatory perimeter update in September.
The FCA did not wish to comment on the situation.
Mortgage Solutions has contacted Treasury for comment.
Several firms told Mortgage Solutions that the response so far had been underwhelming with a lack of awareness cited as a key issue.
The deadline for administrators to contact the 170,000 eligible mortgage prisoners has been extended from 1 December to 31 January 2021 and because lenders require a letter of evidence to proceed with the switch, affected clients are unable to receive help as soon as first thought.
Slow start
Where brokers have had enquiries come in to help mortgage prisoners switch onto an active lender’s books, the interaction is often minimal and slow to take off.
Rowena Chowdery, mortgage adviser at Financial Moves, said she had one enquiry where the client was yet to respond, while Lilla Dilliway, mortgage adviser at Bluewing Financial received her first mortgage prisoner in the last week of November.
Other brokers Mortgage Solutions spoke to said they were yet to hear from anyone who could be helped.
As for John Carter, mortgage adviser at Abode Mortgages, just two of the eight mortgage prisoner queries he received responded to his further requests to provide documentation including one who misunderstood their situation and actually turned out to be a buy-to-let borrower.
Lack of information
Carter suggested that since the mainstream reporting on mortgage prisoners had not been widespread, many who were able to be helped did not know of the solutions that were open to them or where to go for help.
He said: “I don’t think the Financial Conduct Authority (FCA) have got the message across when you compare it to the shenanigans around missold payment protection insurance (PPI), which was also a terrible scandal. There has hardly been any media coverage.
“I don’t think it was conveyed properly in the same way missold PPI was.”
Carter also said there was an issue when he requested documents as some clients were reluctant to provide them and even questioned the importance of doing so.
“Many are under the impression that it is possible to self-certify ‘like we did when we took the mortgage out’.
“The way things were done before were haphazard, to put it nicely,” he added.
Excluding the borrower who turned out to be a buy-to-let case, only one of Carter’s mortgage prisoner clients have provided him with the necessary documents to progress the case to the initial review stage.
He said: “When you ask for bank statements and ID and they ask, ‘what for?’, it’s a bit disheartening. They don’t appreciate what they need to do to get themselves out of the situation.
“They also haven’t been told what needs to be done.”
Awareness seemed to be a problem among brokers too, as following the FCA’s call for firms to put themselves on a directory to be signposted to mortgage prisoners, Dilliway said she was not informed the directory had gone live.
Carter was more fortunate in that his network Stonebridge kept him updated.
As for how inactive lenders were informing clients of their options, Northern Rock seemed to have one of the more effective communication strategies as all of Dilliway and Carter’s cases came from the former bank.
Potentially wider net
While some advisers are concerned that mortgage prisoners do not know of the help available or what information to provide to progress, others have noticed they have been able to assist those who fall outside of the FCA’s remit.
Kevin Duffy, managing director of Mortgage Force, has been working with the mortgage prisoners for a few months and said the volumes of clients he had suggested the regulator’s sampling and estimates were off.
“There are people that can be helped that they clearly didn’t think could be,” he added.
Although Duffy said more than half the mortgage prisoners he had seen were not yet eligible to switch due to income or age, some lenders were not making the process easier by applying a modified affordability assessment that did not “keep to the spirit of the scheme”.
He said instead of looking at borrowers who were up to date with payments and simply wanted to switch onto a better rate, lenders were “essentially underwriting the case according to the credit score, the salary multiple or the applicant’s job condition.”
Standard processes
Considering the complexities faced by mortgage prisoners over the years, the process of placing a case was expected to be the same as a standard mortgage and the brokers confirmed the proc fee was also the same.
Carter said: “I haven’t begun the process so I’m not sure how it differs from a standard mortgage but from what I can tell, looking at the various lenders, the support is there and they are geared up for it so it shouldn’t be too difficult.”
