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GOVERNMENT RESOURCES AND ACCOUNTS BILL
Motion made, and Question put,
- That, during the proceedings on the Government Resources and Accounts Bill, Standing Committee A shall have leave to sit twice on the first day on which it shall meet.--[Mr. Robert Ainsworth.]
Mortgage Debt Recovery
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?
7.14 pm
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
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. Davies: Yes, 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--
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. Davies: I 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?
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