§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Robert Ainsworth.]
§ Mr. Deputy Speaker (Sir Alan Haselhurst)Before I call the hon. Member for Croydon, Central (Mr. Davies), will those Members who are not staying to listen to the debate exit quickly and quietly with our best wishes for Christmas?
§ Mr. Geraint Davies (Croydon, Central)Mr. Deputy Speaker, it is a great privilege to be here with you and my hon. Friend the Economic Secretary for this, the last debate of the millennium in this great Chamber of ours in the mother of Parliaments, and to discuss an issue of such significance to thousands of households throughout the land.
Colleagues and others will be aware that between 1989 and 1993, during the times of boom-and-bust economic turbulence, more than 250,000 homes were repossessed. In 1991 alone, some 75,000 homes were repossessed. Since then financial stability in the marketplace, which is due partly to the Bank of England's independence and partly to prudent housekeeping, has enabled the housing market largely to recover, and it is in good shape.
That recovery, however, hides the fact that many thousands of people who have already faced a repossession in the past now face the haunting prospect of further debt recovery, up to 12 years after their home was repossessed. The simple reason for that is that when their home was repossessed, many of them had negative equity, so the proceeds from the sale did not recover their liability.
Householders and their families face the devastation, many years after their home was repossessed, of a bill suddenly arriving at their new home, demanding huge sums that have been compounded by interest in the intervening period. They face the prospect of being unable to negotiate realistic repayment arrangements.
I pay tribute to the citizens advice bureaux, which in recent years have been inundated with such problems. They have issued a report called "The Long Shadow", and their clients, like many of the people whom my colleagues and I have met in our surgeries, have low-paid work or are on benefits and have no savings. They may have new partners and are trying to start a new life in difficult circumstances. They might have children from their previous relationship or a new relationship, and they are trying to rebuild their lives when they are suddenly faced with the prospect of paying out thousands of pounds and being hurtled into family disunity and long-term poverty, just when they thought that they had scraped their way out of severe difficulties.
This debate is about changing the ground rules for initiating outstanding debt recovery to reduce the limit for starting such action from 12 years to six years, which would certainly help thousands of people in future. People who have been through repossession want to know that after several years they will be able to move on and rebuild their lives without the fear of being haunted by a debt of unknown quantity.
My hon. Friend the Member for Newport, West (Mr. Flynn) has also been fighting hard on this issue, particularly with the Nationwide building society. I am 772 pleased that the Halifax and the Nationwide have now decided to adopt a policy that they will not initiate new debt proceedings after six years. The Council of Mortgage Lenders is consulting its members about the possibility of establishing a voluntary code on that. That is welcome, but the households concerned would like all lenders to be consistent so that everybody knows their position. Clearly, under a voluntary agreement some mortgage lenders will enforce their rights up to 12 years down the line.
There are several good reasons for reform. First, there is enormous uncertainty after a recent Court of Appeal ruling. My hon. Friend the Economic Secretary will know that the current law is enshrined in the Limitation Act 1980, which says that in most cases where there is a simple contract, there is a six-year limitation period in which people have to take action to recover debt. That would apply, for example, to the Inland Revenue. In the special case of a mortgage, however, a 12-year limit applies.
In the Court of Appeal case to which I referred, it was said that it was seriously arguable that if a mortgage debt was incurred and repossession of the house took place, the surplus debt became a simple contract after repossession and the six-year rule should apply. There is much uncertainty due to that judgment, because it leaves in the hands of the judge whether it is "seriously arguable" that the repossession of the house has made the debt a simple contract. In most cases, it is assumed that the 12-year rule applies. That is a reason to iron out the uncertainty.
Many of the people who have suffered the awful trauma of repossession were badly advised in the first place. They were led to believe—in fact, they were told—that once they handed in their keys and repossession occurred, that would be the end of the matter. Indeed, seeing many institutions failing actively to pursue the debt after the event led them to believe that everything was all right. They therefore rebuilt their lives on what turned out to be a false premise.
After paying out insurance to the lenders, insurance companies have the right to pursue the borrower but chose in many instances not to do so. That also gave a false sense of security to people who had had their homes snatched from them in difficult times, were trying to rebuild their lives and had thought that there was an end to their problems.
§ Mr. Peter Bottomley (Worthing, West)Will the hon. Gentleman confirm that many people who had mortgage guarantee policies thought that they were the ones who were guaranteed and did not realise that the policy actually guaranteed the lender?
§ Mr. DaviesYes, that is precisely so. In one way or another, an enormous number of people have been inadvertently or directly misled. That is part of the complexity of the tragedy for so many families and one of the reasons why, as the issue becomes bigger and bigger and lenders and insurers are changing their behaviour, choosing years after the event to pursue the debt, citizens advice bureaux are spending a quarter of their advice time dealing with such cases. I shall quickly cite a couple of cases.
A single parent had a £55,000 mortgage in 1990, but handed in her keys because she could not pay her instalments. The property was sold for £38,000— 773 a shortfall of £17,000—but in 1999, she received a bill for £44,000 as a result of interest and other administrative charges. That was of course completely devastating for the family and entirely unreasonable.
There have been instances of homes being sold at auction for knock-down prices even though those living in them could prove that they could sell their houses for a greater sum on the property market. One couple had someone to buy their house and achieved a selling price which meant a shortfall of only £1,000 on their mortgage, but the lenders insisted that they would sell it and did so for an £8,000 shortfall. Nine years later, the couple received a bill for that shortfall with interest, which is an absolute disgrace.
As my hon. Friend the Minister knows, the matter relates to the Limitation Act 1980. When the Act was passed, negative equity and repossessions were not so commonplace. Indeed, the Act does not envisage the sort of actions that are being taken in the marketplace years after such awful trauma. Therefore, it is time to take stock and to consider what should be done.
It is very much my view and that of the citizens advice bureaux—as well, clearly, as that of the Halifax and Nationwide—that a six-year time limit for initiating debt recovery, which would be in line with other debts, would be much more suitable. I know that the Law Commission is considering the matter, although some five years could elapse before any real help is given to those involved owing to a backlog of Law Commission-inspired Bills. None the less, I obviously very much welcome the review.
As I mentioned, CABs already spend a quarter of their time dealing with such cases. Regrettably, owing to the dynamics in the housing market in various parts of Britain, particularly the north-west of England, people are once again ending up in negative equity. There is the prospect of those people who face repossession losing their house, rebuilding their lives, and, in 2011, facing further action for debt.
§ Mr. Michael Jabez Foster (Hastings and Rye)I am grateful to my hon. Friend for giving way. My constituents, Barbie and Patrick Sheargold, were looking forward to a career on the council and working for a housing association. As a result of an assignment of debt, the lives of both are blighted. My hon. Friend's proposal is extremely important for people such as them.
§ Mr. DaviesI thank my hon. Friend for that example. There are countless people throughout the land who are faced with such a trauma. I am sympathetic to their plight, and hope that my hon. Friend the Economic Secretary will consider the issue with her usual creativity and sympathy. I know that the Financial Services and Markets Bill is moving forward and there may be various creative ways of confronting the problem.
Time is of the essence. Whenever a year moves on, another pool of people face the 12-year time limit, so the sooner we tackle the issue, the better. What better new year present for thousands of people who may be facing the misery, hardship and trauma of repossession than the knowledge that another trauma will not haunt them in 12 years, and that the limit will be capped at six years?
§ The Economic Secretary to the Treasury (Miss Melanie Johnson)I congratulate my hon. Friend the Member for Croydon, Central (Mr. Davies) on securing the last Adjournment debate of the century and the last item of business to be carried out in the House in this millennium. I am somewhat humbled to be the last Minister to speak in a debate in the House of Commons this century, bearing in mind all the momentous occasions that this great debating Chamber has seen over the years.
Looking back to the beginning of the century, I note that when Parliament returned from its Christmas break on 30 January 1900, it was to hear—astonishingly—the 63rd Address of Her Majesty Queen Victoria, who spoke on hostilities in South Africa at the time.
The first Member of Parliament to speak in the House that day was Captain Prettyman, who had been in the Royal Artillery and was the Member of Parliament for Suffolk, Woodbridge between 1895 and 1906. As a military man, his main focus as a mover of the Address was in supporting our troops in South Africa. He also defended the artillery from criticism that their field guns were not as effective as the enemy's. On the home front, which is highly relevant to the debate, Captain Prettyman supported the remodelling of the prevailing Companies Act to stop people being induced to part with their money under false pretences—plus ça change, as they say.
Like my hon. Friend the Member for Croydon, Central, I was concerned to read of the cases highlighted in the National Association of Citizens Advice Bureaux report, "The Long Shadow". Before I deal with the matters to which my hon. Friend referred, it may be helpful if I set them in context.
At the end of 1996—the latest figures available—there were 16 million owner-occupied houses in Britain, some 67 per cent. of the housing stock. That shows the huge strides in prosperity that the UK has enjoyed in the 20th century. At the end of 1998, there were 10.9 million mortgages in place. Of those, only about 230,000 were in arrears, which represents about 2 per cent. of the total, and 35,000 of them had been in arrears for more than 12 months—that is, 0.33 per cent.
Most people pay off their mortgages regularly, with few problems. Nevertheless, there have been concerns about the mortgage market for some time. As part of our manifesto commitment, the Government decided to consider whether there was a case for the regulation of mortgages. The Treasury published a discussion document in July, seeking comments on whether the advice on and selling of mortgage products should be regulated by the Financial Services Authority. A major part of the exercise was to seek evidence to show where consumers were being damaged in the present mortgage market. The Treasury received 200 responses from consumer bodies as well as lenders and regulators. The FSA published its own cost-benefit analysis. The Treasury has set out proposals for charges access terms-standard mortgages and received comments from a wide range of bodies on those proposals.
The Treasury is in the final stages of making a decision on how best to protect consumers; we hope to make an announcement soon. In response to the main mortgage 775 consultation, NACAB and others highlighted questionable practices by lenders, to do with arrears and repossession procedures while borrowers are still in possession, and chasing repossession debts afterwards.
Regulation—if that is the eventual decision—could not cover the relationship between lenders and borrowers who are in financial difficulties. It would cover only the sales process, including the advice associated with it. Good advice would include consideration of whether the customer could afford the mortgage in the first place, and information about what might happen if he subsequently could not afford it.
Our proposed CAT standards are designed to ensure that lenders deal fairly with borrowers who have only modest arrears. We acknowledge that lenders need to have the means to recover outstanding moneys that are due to them—that is only fair to the majority of borrowers who pay on time. However, it is important that they do so in a reasonable manner without being unduly harsh.
In its report "The Long Shadow", NACAB calls for an amendment to the Limitation Act 1980 to clarify the limit of six years for lenders to start recovery action for mortgage shortfall debt, as my hon. Friend pointed out. The Limitation Act states that, in the case of the principal sum secured by the mortgage, no action may be brought to recover the sum after 12 years have expired. The length of time for other debts is six years.
In the 1997 Court of Appeal case of Hopkinson v. Tupper, the court considered that when a mortgagee has repossessed and subsequently sold the property under the terms of his security and is seeking to recover a shortfall, it is arguable that his claim is one in simple contract, whatever the nature of the instrument under which the debt was initially secured. In layman's terms, on sale of the property, any outstanding mortgage debt becomes ordinary debt. The time limits for those recoveries is six years.
Treasury legal advice is that the views expressed by the court do not serve as a legal precedent, which must be followed in later cases. However, I understand that the Law Commission has consulted on civil limitation periods in general. The Government will consider its report and recommendations carefully. Those matters are the responsibility of the Lord Chancellor's Department.
That does not mean that some rules are not in place. The Council of Mortgage Lenders, which represents some 98 per cent. of the mortgage market, has a statement of practice on handling arrears and repossessions. It sets out several principles and practices, which include: possession to be sought only as a last resort when all other attempts to make alternative arrangements have been unsuccessful; and lenders to be under a duty to obtain the best price that is reasonable for the property, but the sale of the property to take place as soon as possible to minimise the accrual of mortgage interest on the account. Following the sale of the property, the borrower remains liable to repay any shortfall between the amount of the outstanding mortgage 776 and the sale price obtained. The lender should notify the borrower as soon as practically possible of the amount of the shortfall.
As a direct response to the NACAB report, the Council of Mortgage Lenders will shortly consult its members on the practical implications of lenders contacting borrowers during the six-year period. That is welcome news; I am sure that my hon. Friend will welcome it.
Like my hon. Friend, I was pleased that the Nationwide announced on 16 December that it will place a time limit—on starting the recovery of mortgage debt—of six years from the sale of the mortgaged property. In the light of the CML consultation, I am sure that other lenders will follow suit.
In drawing the debate to a close, I want briefly to take stock for a few moments to mark the historic changes to the role of women in the House. The first woman to be elected to the House was Countess Constance Markievicz, who represented Sinn Fein, in 1918. She did not take her seat, in common with other Sinn Fein Members. The first woman to take her seat was Viscountess Astor, who concluded her maiden speech by saying:
I am simply trying to speak for hundreds of women and children throughout the country who cannot speak for themselves."—[Official Report, 24 February 1920; Vol. 125, c. 1631.]
§ Mr. DaviesWomen and children are seriously affected by the issue that we have been discussing. Does my hon. Friend agree that it is worth reviewing the matter of achieving a sale as soon as possible after repossession? Rather than being effectively and professionally marketed, people's homes are repossessed and sold at auction for a low price, even though those homes could be sold for much more and the future liability could be much less. Something needs to be done to ensure that the liability is minimised.
§ Miss JohnsonI am grateful to my hon. Friend for those remarks, which tie up with the CML's point that it is important that lenders secure the best price that is reasonably obtainable for a property. How a property is sold, and how quickly that is achieved, are indeed relevant. Indeed, under the code arrangements, lenders are under a duty to obtain the best possible price. The subject of the debate is important because it affects us all: our homes are central to our lives and our security.
There has been massive change in this century, both in terms of people's home lives and the representation of women in the House. The House has seen many other changes over that period, and I am grateful to my hon. Friend for initiating the debate on such an historic occasion. As we look forward to the new century and the new millennium, I am sure that he, like me, hopes that the House can be at least as instrumental in furthering the many issues that concern hon. Members and the wider public as it was in the past century.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-three minutes to Eight o'clock.