§ "23A. The provision of loans for the purchase of property for residential use, where the obligation of the borrower to repay the lender is secured on the value of the property in question.".
§ I realise that, for the first time in its long passage in the House, the Bill is ahead of the clock. I do not intend to fill the remaining 40 minutes, but should like to return to an issue that I raised in Committee—mortgages, and how they are handled in the Bill and by the FSA. There is a paradox here, in that the aspect of financial services regulation and the work of the FSA that will have the greatest impact on our constituents is almost certainly the one relating to mortgages, yet it has been subject to very little discussion during the passage of the Bill.
It might be useful to recap briefly how the issue has emerged. It was subject to considerable discussion at the pre-legislative stage by the Select Committee on the Treasury and by the Joint Committee. There was consensus at that point that mortgages should be regulated under the Bill. Last year, there was a strong media offensive by the Chancellor and the Secretary of State for Trade and Industry, who pointed to the many areas of abuse in the market and made it clear that regulation was urgent, overdue and needed to be draconian.
We then discussed the Bill in Committee, and the Government and the Treasury properly went through a process of public consultation. It was a little discordant, in the sense that there was a difference between Ministers and officials as to whether it should be a statutory or a voluntary process. We were promised that the Government would report eventually, and that a policy would be announced. It emerged in the new year.
346 The announcement of mortgage regulation was not made to Parliament. It has not been presented here, and the proposals have never been discussed here. As far as I know, there are no proposals to discuss the proposals here. I hope that, at the very least, this short debate will provide an opportunity for people to react to what the Government have done, although the specific purpose of the amendment is to make the regulation of mortgages explicit in the Bill.
I do not want to comment at length about what the Government have decided. I have read the newspapers like everyone else, and I have formed a preliminary judgment. I do not understand why it has been decided to split the regulatory control of mortgages. The whole rationale of the Bill was that we would have a one-stop shop for regulation which would be simple and clear. However, mortgages will be split depending on their size.
§ Miss Melanie Johnsonindicated dissent.
§ Dr. CableThe Minister shakes her head, and this may be a point that she can be clear up quickly. My understanding was that small loans would be covered by consumer credit legislation, rather than through the FSA. I had understood that there was to be dual responsibility for mortgage regulation between two separate Government Departments. I hope that that will be made clear.
Why have the Government chosen to defer the introduction of mortgage regulation until what would appear to be the latest possible time? There are two perfectly legitimate lines of argument. One is that there are serious problems of the abuse of consumers—I thought that this was the view of Ministers—and that mortgage regulation was urgent and important, in which case it should be brought within the FSA as quickly as possible. The other view, which some Conservative Members have argued—it is a perfectly plausible argument—is that self-regulation was working perfectly well, the mortgage lenders were learning as they were going along, and there was no need to change the system. They thought that the system should be spun out for as long as possible.
What is the rationale behind the timing that Ministers have chosen, which is to introduce the system over 18 months? Is it because that is the time needed to staff the FSA? There may be perfectly good practical reasons.
My understanding is that mortgage advice is not to be regulated in the same way as mortgage lending. This appears to imply that an independent financial adviser mis-selling a mortgage package and giving bad advice is exempted from the proposed regulatory provisions. That seems odd. I can understand why the authorities might wish to encourage independent financial advice—which, in itself, is a good thing. Independent financial advice is desirable, rather than tied advice. However, exempting it altogether from the provisions of mortgage regulation seems odd, since we are aware from the private pensions sector that a lot of the malpractices occurred in the IFA sector—not that the IFAs should be the scapegoats. If there are abuses, they apply to the independent advisory bodies as well as to the mortgage lenders. Why regulate one and not the other? The reasoning behind that is unclear.
I want to understand how some of the matters which most concern people about mortgage lending will be dealt with under the new regime. For example, redemption 347 penalties trouble many people who take out a fixed-rate mortgage on attractive terms and then pay a heavy redemption penalty if they repay early. How will the system outlaw, change or manage that?
If someone goes to a building society or a bank to take out a mortgage, they are under a lot of pressure. They are told that they can have a mortgage, provided they take an endowment or the society's insurance policy. How will that activity be regulated under the proposals? I ask these questions in all innocence, as I do not know how the system will work. I am as much concerned with getting answers as I am with establishing the process by which the House will conduct the debate.
There are at least three members of the Select Committee on the Treasury here and, in due course, the Committee will be looking at this matter. However, it would seem appropriate, given the importance of the subject to large numbers of people, that we should have a proper opportunity to discuss what mortgage regulation will be about.
§ Mr. FlightI wish to echo much of what the hon. Member for Twickenham (Dr. Cable) has said. When I read the Government's announcement casually, it seemed reasonable. It was only when I looked into it that, regrettably, I saw that the spin papered over some major problems.
There are various issues to discuss. First, is the FSA capable of providing the regulation that is needed and appropriate? Is the reason for delay that Howard Davies has too much on his hands? The Treasury has signalled that it was cautious, as the large players wanted regulation and we were heading for a form of regulation which would encourage cartels, rather than competition.
It is important that the regulation of mortgages is the first time we have moved from regulating the asset side to the liability side. If we regulate borrowings against houses, why do we not do so for other borrowings? There are as many potential scams and criticisms when people borrow money for their businesses. Where do we draw the line as regards personal borrowings, other than small consumer borrowing?
I was amazed to find that, under the Government's proposals, providers would somehow be responsible for advice. When an adviser is giving advice—whether it is on buying financial assets, taking out a mortgage or taking out an insurance policy—it is, broadly, all the same thing. It is a question of whether that adviser is giving the best advice to his client or clients in relation to financial products. We have chaos now, in that an adviser is regulated under the Bill in relation to assets, but has a completely different regime in relation to insurance. There was chaos left from the old regime, before insurance comes under the new regime, while mortgages are not regulated at all.
Speaking from personal experience when I was given mortgage advice, both times it was unsatisfactory and a waste of money, and I could have done better myself. Mortgage advice needs some form of effective regulation. When we debated the issue in Committee, I recollect making the point—in an echo of the seminar that the Treasury had put on—that we wanted effective regulation. Whether it was to be voluntary or compulsory, it needed to work. Although so far voluntary regulation has been 348 ineffective, the Treasury officials seemed to be saying that there was a better chance of getting effective voluntary regulation than compulsory regulation.
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I do not pretend to know the answer, but what we have now does not strike me as especially satisfactory. The product is regulated, but not the advice, and the regulation will not start for some time. Life will be more confusing for the consumer buyers of mortgages than it is at present. I agree with the comment that it is an extraordinary way to give birth to the process, because it has not been debated in Parliament or even announced. It has taken place outside the democratic process, and we now have a package of measures that most hon. Members probably do not understand at all.
§ Mr. CousinsI commend the Government on the measures they have taken to bring mortgages under some kind of regulation. That is long overdue and could not have been done under the previous legislation. The Government clearly signalled that they wished to consult widely on the procedure, and that consultation produced a clear and emphatic result. The Council of Mortgage Lenders began by resisting the idea of mortgage regulation, but now accepts and indeed advocates it, following the consultation. That reflects the real progress that the Government's approach to the issue has brought.
I also have to say that the House is indebted to the hon. Member for Twickenham (Dr. Cable) for tabling the amendment, because it enables us to consider the issue of mortgage advice. Without repeating what was said by the hon. Member for Arundel and South Downs (Mr. Flight), I suggest that it would not be true to say that mortgage advice is one of our best regulated professions. That constitutes a real difficulty. We are not dealing with a function that is already well patrolled and policed by a professional organisation. If advice and, in some respects, packaging advice—linking to mortgages to other products—were not regulated by the FSA, we would end up with a very complicated situation.
In particular, the mortgage provider, whom the Government intend to regulate, would be in a difficult position. The mortgage provider may have a client who is already committed to a course of action that has been urged by the mortgage adviser and which the mortgage provider may find difficult to resist. None the less, as matters stand, it is the mortgage provider who will carry the responsibility for the failure of the advice, not the adviser.
I urge my hon. Friend the Minister to consider how the issue might be further clarified. The Government have done so well on the issue and it would be a shame not to have a system that was fully organised and protected, and robustly and adequately regulated. In other respects, the Government have done splendidly in bringing an important area of concern properly under control.
§ Miss Melanie JohnsonThe comments made by hon. Members this evening about mortgages have ranged widely on the basis of the amendment, but I am happy to answer the points that have been made. The amendment is specific; it covers the same ground as paragraph 23 of schedule 2, which is the provision in the Bill—it was there when we discussed the issue in Committee—that enables 349 regulation to take place by means of statutory instrument. Further debate will obviously take place when such an instrument is introduced.
The original day for debate on this part of the Bill was two weeks ago, which would have been shortly after I had made the announcement. Because of various parliamentary eventualities, a little time has passed and we have been able to discuss the issue now, which has been beneficial.
Virtually all residential mortgages will be covered by the FSA, and all first charge mortgages will be covered by FSA regulation, regardless of the value of those mortgages. The only provision that is separately covered—in this respect, we are subject to other legislation that we are not here to debate—will be second charge mortgages or mortgages for such things as double glazing.
Hon. Members have raised the issue of mortgage advice. In considering mortgage regulation, we have tried to address the detriment that consumers were experiencing in dealing with the mortgage market and which was reported to us as a result of the consultation. That detriment was mainly based on bad and misleading information, including hidden charges and surprise small print, which consumers needed a fine-toothed comb to discover. Consumers received many unpleasant surprises from the mortgage deals that they had been sold. We sought to address those issues because consumers are still experiencing those difficulties. It is important, following such a consultation, to address the problems that it found, and that is what we are doing.
The issue of advice has exercised people somewhat. It is important to realise that because endowment mortgages are investments, advice about them has always been covered by regulation and will continue to be covered. All mortgages that are to be repaid by means of endowments as investment vehicles will be regulated, as has been the case for some time. The FSA has recently taken a number of steps on the selling of endowment mortgages, and many providers have decided to pull out of the endowment market. There have been a number of such announcements.
Advice is a technical term in this context. It is not like popping into the estate agent's and asking whether it has a number of different mortgages. We are talking about someone who will go through an applicant's entire financial circumstances. It may take an hour or more to do and will require the applicant to produce background information such as bank statements, pay slips and other evidence of his financial circumstances. People divulge such information in considerable detail. Those who are technically giving advice can then match up the applicant's financial circumstances to a range of products available in the market. That is the process of advice giving. We are not talking about the more casual advice that we all receive from different people just by exchanging a few words with somebody under particular circumstances.
I decided not to regulate mortgage advice because that was not the problem that people were identifying. Nor do I think, in the light of the regulation that we have chosen, that it will be necessary in many cases for people to resort 350 to such advice. If they are buying endowment products or going for any investment vehicle, they will have to get advice, and that advice will be subject to regulation.
The hon. Member for Twickenham (Dr. Cable) mentioned redemption penalties. Details of those will have to be set out very clearly in the information available to consumers. We are regulating the form of information that consumers receive, so that they can compare one lender's offer with another or compare the products that they are being offered. They will be able see very clearly what the terms, conditions and repayments of a mortgage are, and can compare products for themselves using the simple and comprehensive information that they will receive as a result of the regulation.
The possibility of certain things coming as a surprise will no longer exist. That will be the result of the FSA's regulation of the information. Redemption penalties will be outlawed as part of the CAT standard regime. If someone buys a CAT standard mortgage, they will know that no such penalties will apply.
§ Mr. FlightDoes the Minister not agree that quite aside from the issues that she describes, when people take out a mortgage there are some crucial matters on which they need advice, analogous to buying a unit trust? For example, depending on the future course of interest rates, taking out a fixed-rate or floating-rate mortgage will make a huge difference to one's net wealth and position. Many people will not know what is likely to be appropriate to their circumstances or what can be expected of interest rates in the future.
Secondly, even with very standard mortgages, the difference in charges in the market varies considerably, depending on whether particular lenders want to lend or not. Therefore, people get advice on where they can get the best deal on a seven-year fixed mortgage. There is a growing market for advice, partly because of the complexity of mortgages. The Minister says that she has not had feedback—
§ Mr. Deputy Speaker (Mr. Michael Lord)Order. Is the hon. Gentleman making a speech or an intervention? He has probably said about enough.
§ Miss JohnsonI was lulled into listening to the hon. Gentleman as if he were making a speech. I was interested in his comments.
Were people to receive advice in the sense referred to by the hon. Gentleman, the only way in which it could be regulated is if the person giving the advice went through extensive financial examination of their affairs. Otherwise, advice which is not really advice in this technical sense would not be subject to regulation, nor could it be. How could one judge whether advice was good if it was not based on evidence of an individual's financial circumstances? That is why I felt that it was not the right course to take. People wanting a full inquiry can of course take advice in that sense. It will be regulated in the same way that advice on endowments is regulated. If one is simply popping in to ask for information, there cannot sensibly be any regulation.
We have decided to regulate lenders, who will be responsible for making sure that brokers comply with regulations about information and behave as if they, like the lenders, were regulated by the FSA.
§ Mr. CousinsMay I urge the Minister to bear in mind the fact that the mortgage market contains a bewildering range of products that are simply mortgages? There are mortgages calculated daily, flexible mortgages, fixed-rate mortgages, mortgages with different redemption penalties and many more. There is an established market for advising and directing people who may be not terribly sophisticated or new to the market. Those different products have quite different effects on people's income, and they take that income at different points in people's lives, which is crucial to many low-income families purchasing a mortgage for the first time. I urge my hon. Friend to reflect on the position, considering whether the heavy bias—
§ Mr. Deputy SpeakerOrder. Long interventions seem to be becoming contagious.
§ Miss JohnsonHon. Members are much enticed by this, Mr. Deputy Speaker. I have already reflected on the matter at length and found that there is a problem with the information that people receive rather than with advice, except in the case of endowments for which advice is regulated already. That is why we chose the route in the Bill. I accept that many mortgage products are available—between 4,500 and 5,000, in fact—but consumers cannot make comparisons between them because the information available is not standardised. Nor is it clearly set out in terms that people may readily understand. For that reason, we have decided to regulate the form of information provided and the conduct of lenders and, through lenders, brokers. We believe that that will deal with the detrimental effects that consumers experience in today's mortgage market.
I reiterate that amendment No. 444 covers the same ground as paragraph 23 of schedule 2. The action that we have decided to take will protect consumers, and I look forward to discussing the matter further when we produce a statutory instrument.
§ Dr. CableI thank hon. Members on both sides of the House for the depth and experience that they have brought to the debate. I agree with the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) that we should not lose sight of the central point, which is that we are on the threshold of mortgage regulation. That is a positive development. We are arguing about the way in which it is being done, but the central point is that it is happening.
I was glad to hear the Minister accept that the legislative process had not yet thrown up a proper scrutiny process. I look forward to debating the statutory instrument. I hope that that debate will be held soon and will be well signalled so that it may have the promised substance.
In long and eloquent interventions, it has been made clear that there is continuing concern about advice. I have gained the impression that representative bodies in the field—the Consumers Association and the National Consumer Council—remain concerned, although I do not know what evidence they gave to the public inquiry. In retrospect, they feel that the exclusion of advice considerably weakens the Government's proposals for regulation. I look forward to the continuation of that debate.
352 The Minister mentioned CAT standards. Such benchmarking of complex products is useful, but much of the Government's policy hinges on the fact that CAT marking should be an accepted and understood convention, not only for the products we are discussing but for utilities products and for pensions, when they are introduced. However, many products that are not CAT-marked will continue to be sold and will contain serious defects.
I realise that the amendment does not address the problems about advice that have been thrown up by the debate. The amendment's scope is narrow and I shall not push it to a vote. I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.