Monday 23 October 2017
[Mr Philip Hollobone in the Chair]
I beg to move,
That this House has considered e-petition 186565 relating to eligibility for mortgages.
It is a pleasure to serve under your chairmanship, Mr Hollobone. The petition, which has attracted 147,307 signatures, reads:
“Make paying rent enough proof that you are able meet mortgage repayments”.
The petitioner, Jamie Jack Pogson, goes on to say:
“Since living on my own I have paid £70,000+ in rent on time yet still struggle to get a mortgage. Unless you’re getting handouts, wealthy or in receipt of inheritance it’s almost impossible. I want paying rent on time to be recognized as evidence that mortgage re-payments can be met.”
The broken housing market is one of the greatest barriers to social progress in Britain today. Whether buying or renting, housing is increasingly unaffordable, particularly for ordinary working-class people who are struggling to get by. The number of people getting joint ownership mortgages has gone up to 74% from 66% 20 years ago because of the need for two people’s incomes. The average age of first-time buyers is also creeping up. Deposits have increased significantly to £48,000 on average across the country. Here in London—I am a London MP—it costs £94,000 on average to get a deposit.
The key to fixing the housing market is clearly to build more homes, which is why the Government are committed to delivering 1 million more homes by the end of 2020. However, finding a deposit is still one of the biggest problems that people face when looking to buy a new home. The Government’s Help to Buy schemes have helped more than 320,000 people across the UK to buy a new home, including more than 275,000 first-time buyers. The equity loan scheme provides buyers with an equity loan of up to 20% of the value of a new build property, which is repayable once the home is sold. I am pleased by the recent announcement of a further £10 billion investment in the scheme to help an estimated 135,000 new buyers and to ensure that the scheme can continue to 2021.
Since the equity loan scheme’s launch, more than 130,000 properties have been bought with the support of the equity loan scheme; the majority—81%—were bought by first-time buyers. The scheme has not just helped people to buy a new home. Industry experts have also credited Help to Buy with boosting supply and generating benefits for communities, councils and the Exchequer. The London Help to Buy scheme offers an equity loan of up to 40% for Londoners who have a 5% deposit. The help to buy ISA will also continue to help people to save up for their first home by providing them with a maximum Government bonus of £3,000 on £12,000 of savings—a boost of 25%. However, far too many hard-working young people from all walks of life are still struggling to get a foot on the property ladder.
We face a situation in which banks have to ensure that they give good loans, but people want their rental payments to be taken into account. Rental payments do not seem to me to be a good guarantee for future performance, so does my hon. Friend have any suggestions about how they might be taken into account?
I appreciate my hon. Friend’s important point, which I will come to later. Rent clearly does not give any guarantee for the future but it gives a better guide to creditworthiness, in the sense that people have spent time paying rent regularly, on a monthly basis. As we heard, the petitioner spent £70,000 with little to show for it other than that he paid his bills, whereas obviously, when someone has the aspiration of home ownership, that same £70,000 could have been building up equity. If someone has a good record in one area, they would hope that that, combined with all the other checks that banks need to do, would be good for credit for a mortgage as well.
The Government have doubled their housing budget and are investing £7.1 billion in the expanded affordable homes programme to deliver 225,000 affordable housing starts by March 2021. In addition, the housing White Paper sets out bold new plans to fix the broken housing market and build more homes across England. Starter homes, which are targeted at the first-time buyers we have been talking about, form an important part of the Government’s action to help more than 200,000 people become homeowners.
A £1.2 billion starter homes land fund will be invested to support the preparation of brownfield sites for starter homes and other affordable home ownership tenures. I am delighted that this year we will see the first starter homes being built on brownfield sites across the country. They will be built exclusively for first-time buyers between 23 and 40 years old, at a discount of at least 20% below market value. Alongside that, a new rent-to-buy scheme will help hard-working households to benefit from a discounted rent set flexibly at levels to make it locally affordable so that they can save for a deposit to purchase their home.
Stamp duty means that the average first-time buyer typically faces a tax bill of £11,427 here in the capital according to the Land Registry, which recorded the average price paid by new entrants to the London property market as £428,546. Even a starter flat costing a quarter of a million pounds attracts a stamp duty bill of £2,500. In my view, the Government should aim to take most first-time buyers and some downsizers purchasing smaller properties out of this tax entirely, to reduce the burden on family homes, and to fix anomalies such as those around shared-ownership properties, which are an increasingly popular way to get on the housing ladder.
The evidence is clear: stamp duty, like all transaction taxes, reduces the level of transactions. The effects can be pretty stark. For example, ahead of the buy-to-let surcharge in March 2016, mortgages soared by 71% but then dipped to 60% the month after. That was not just a short-term effect. Six months later, in December 2016, buy-to-let mortgage lending was down by nearly 40% on the year before, whereas other mortgage lending was up.
Introducing the buy-to-let surcharge clearly reduced transaction levels, and the best way to boost them again is to cut stamp duty for homeowners, which should boost transactions and economic growth. By focusing on residential homes, such a cut would also boost home ownership. At the same time, shared ownership—an increasingly popular way to help people buy part of a property—needs stamp duty reform. Currently, the providers of these affordable home ownership properties and their customers often pay twice: providers pay on the whole property and then shared owners pay again when they buy their share. Stamp duty in such cases should be charged only once, making it even more affordable for people to get on the housing ladder.
In my understanding—I have some involvement in shared ownership—the buyer elects when to pay, and one reason why is that if someone buys a share for, say, £250,000, the stamp duty at that point would be lower than if the price went up in future and they elected to pay at a later stage. If we reform the system, we should at least maintain the choice for the customer, because it works quite well.
My hon. Friend is right that choice is important. I still believe that a simpler tax system would enable the system’s anomalies to be ironed out right at the beginning, rather than each Budget having to iron out any anomalies that come out over time, but I welcome his intervention.
I began by talking about supply, which is the most important thing, in my view. The Government have taken action on that issue. Last year saw the highest number of residential planning permissions being granted on record and the highest level of net housing additions since the recession. However, the average home still costs almost eight times people’s average earnings, making it difficult to get on the housing ladder. The proportion of people living in the private rented sector has doubled since 2000, with more than 2 million working households with below-average incomes spending a third or more of their disposable income on housing. That is why I am encouraged by the vision for housing set out in the White Paper. The starting point must be to build more homes, slowing the rise in housing costs, so it is right that the White Paper sets out measures to plan for the right homes in the right places, to build homes faster and to diversify the housing market.
Even if we can get enough houses, lower fixed costs for homebuyers and provide short-term help through schemes such as Help to Buy, there is still a significant structural issue that many young people, in particular, will face, and that is the difficulty in getting a mortgage. Tenants can be disadvantaged in getting credit beyond mortgages. Millions of people are excluded from affordable credit because they do not have a credit history. For the financially excluded, it is a Catch-22 situation: without a credit score, applicants are declined by mainstream providers and considered riskier customers, but the only way to build a credit score is to have a form of credit, such as a mortgage or credit card, in the first place.
Most people on low incomes manage their limited money carefully, yet banks, utility companies and other retailers can discriminate against them. An estimated 2 million people, many of whom are social housing tenants, take out high-cost loans because they cannot access more affordable credit. The Financial Inclusion Commission estimates what is often called the poverty premium—the extra spent on basic necessities such as gas and electricity, mobile phones, white goods and furniture—to be £1,300.
Big Issue Invest has an interesting initiative called the Rental Exchange that will chime with people who supported the petition. The organisation is working with Experian, the UK’s leading credit reference agency, to prevent low-income people from being caught in a vicious circle of no credit score and no lending. Since 2010, Big Issue Invest and Experian have been working with registered social housing providers to incorporate tenants’ rent payment history into their credit files, with no cost to either the housing provider or the tenant. The data are kept in a secure and compliant way, are not used for marketing purposes and are made available only if the tenancy information is relevant and the tenant has agreed to a credit check, or if it is strictly necessary for an organisation to check information about a tenancy, such as in a case of fraud. Tenants can opt out of the scheme.
More than 150 registered housing providers, including housing associations, local authorities and arm’s length management organisations, are signed up to the Rental Exchange, representing 1.5 million tenants across the UK. Experian has tested the value of adding rent data to tenants’ files for each housing provider that comes on board, working with the provider to ensure that rent payment data are accurate before allowing them to go live. The testing has demonstrated some positive results, including an increase in digital identity authentication rates from 39% to 84% for social tenants when rent data are included in credit files. As well as allowing better deals while shopping, that makes life easier in other matters, such as signing up at a GP surgery or accessing benefits without paper copies of identification. In more than 70% of cases, tenants with no significant arrears have increased their credit score.
As well as tackling financial exclusion among the people on the lowest incomes, the approach can have a significant benefit for young people who might have a reasonable income but have not had the time to build a reasonable history for lenders to consider. Rental data add more weight to a credit file on the register, giving lenders more confidence that the applicant is genuine, and a positive payment history provides a strong indicator of good financial conduct. Lord Bird, founder of The Big Issue, has introduced a private Member’s Bill in the other place, the Creditworthiness Assessment Bill, which considers the wider implications and difficulties of financial exclusion, but I will limit the rest of my remarks to access to mortgages, as per the wording of the petition.
First-time buyers are much more likely to have been living in rented accommodation now than 20 years ago—66%, compared with 39%. Rent in London may have fallen over the last few months, but with a Greater London average rent of £1,564, the total amount spent on housing is still a huge proportion of the average household income, so it is hardly a surprise that so many people saw the suggestion in the petition as worthy of further consideration. I am pleased that the Residential Landlords Association supports the petition, although it expressed some concerns about the Rental Exchange system, as smaller landlords must go through another layer of bureaucracy in order to be included: their rents must first be paid to a “Credit Ladder” before being passed on to them. The RLA expressed concern that that muddies the water about who chases rent arrears and distances landlords further from tenants.
Although those issues can be overcome, the concerns point to the fact that even a seemingly simple move would need to be carefully considered so as not to create any negative unintended consequences. Clearly, the last thing that anyone would want is for lending to be relaxed to the point that triggered the mortgage market review in the first place. Back in 2010, the Financial Services Authority found that expectations of ever-increasing house prices and the ability to pass on risk to others led to relaxed lending criteria and increased risk-taking.
There is nothing in the petition to suggest greater risk taking; in fact, the opposite is the case. Having a more rounded financial history for applicants can lead to more informed decision-making by lenders. That transparency works both ways, and could have a negative impact on future applications for some. There are many other factors that lenders must consider, such as long-term income stability. Homeowners have other costs that renters do not have to pay, such as redecoration, insurance and so on. Maintaining a home is not cheap, especially when it comes to one-off but necessary maintenance such as roof repairs. House purchasing is a long-term commitment, and interest rates can rise more erratically than rents.
The Petitions Committee arranged a forum on the Money Saving Expert website, which 1,400 people viewed and a few people commented on. One person expressed concern that letting agents have too much power over tenants as it is, but the majority of commenters were largely supportive of an approach like the one mentioned in the petition. Some people wondered why Government needed to be involved in the first place, a sentiment with which I have always had sympathy. I am old enough to remember Ronald Reagan’s nine most feared words:
“I’m from the Government, and I’m here to help.”
The Budget is coming up. I make a belated plea to the Minister to take the feedback from the 147,000 people who have signed the petition and consider moving towards a solution in the forthcoming Budget. When he replies, can he let us know whether he thinks that there is a market-based solution that we can unlock with our world-leading fintech businesses? Petition Committee members always say that an e-petition debate is not the end of the petition process but the start of a campaign. Including rent payments in the assessment of mortgages is not without its possible negatives, but I believe that it is well worth considering. I suspect that a market-based solution will have the flexibility required to make it work; brief legislation cannot easily change as the market develops. I hope that the Minister and the Government will consider the petition seriously and do what they can.
I remember the joy of buying my first house, and the sense of freedom and achievement. I am now at an age when my children, the eldest older than I was when I first picked up those house keys, are looking at the options open to them with some concern and trepidation. Let us ensure that first-time buyers have every chance of getting on the housing ladder, fulfilling the aspiration that so many of us have had the good fortune to realise. Let us do what we can in this area as another piece of the jigsaw in supporting a new generation of homeowners.
This debate can last until 7.30. Paul Scully will sum up the debate at the end, but in the meantime, I call Jim Fitzpatrick.
I am pleased to see you in the Chair, Mr Hollobone; it is a pleasure to serve under you, as ever. I congratulate the hon. Member for Sutton and Cheam (Paul Scully) on securing this debate on behalf of the Petitions Committee. Those I have spoken to in the housing sector welcome his support, and the petitioners’ suggestion of including rental history in the criteria for securing a mortgage is clear common sense. They will be pleased to hear the Front-Bench speakers, especially my hon. Friend the Member for Stalybridge and Hyde (Jonathan Reynolds) and the Economic Secretary to the Treasury, express their views and hopefully their support for the petition.
The hon. Member for Sutton and Cheam commented anecdotally that one of the worst-feared phrases is:
“I’m from the Government, and I’m here to help.”
When I was in the Government Whips Office from 2001 to 2004, it was even more welcome when I said to colleagues, “I’m from the Whips Office, and I’m here to help.” However, that is a different issue entirely.
I will speak briefly about a less obvious anomaly involved in mortgage eligibility and problems: the policy of doubling ground rents that many developers impose on leaseholders. Many thousands of people then have difficulty selling their property, because mortgage lenders draw red lines around it, locking it in so that they cannot move along the housing ladder.
There have been a number of announcements recently from the Department for Communities and Local Government. I recognise that that is not the Economic Secretary’s Department, but I am sure that DCLG checks with him before making any announcements, because if the Treasury does not green-light something, it does not get past the starting block. I am keen to hear his comments, as I will explain later, on DCLG’s announcements. They have included the housing White Paper, the leasehold review and the eight-week consultation, the call for evidence last week and statements on Grenfell. Over the weekend, the Secretary of State for Communities and Local Government also announced policies on house building, particularly in the social housing and rented housing sectors.
Ground rents used to be of a peppercorn nature—a token element of house buying. Before the 2008 crash, ground rents rose roughly with the RPI, if at all. After the crash, developers introduced the policy for ground rents to double every 10 years, which effectively meant an 8% to 10% annual increase on ground rents and real problems for sellers and buyers.
Some developers—the good ones—did not go down that road. In the past year, Taylor Wimpey has announced that it will end the doubling of ground rents and return to RPI. It has set up a £130 million fund to put right the unfairness that was introduced into the system and fix the problem. It has a way to go, but at least it has identified and accepted that the policy is anomalous and is looking to repair the unfairness. Some developers, such as Countryside, were still selling flats on that basis in London as recently as this spring.
Consequently, mortgage lenders are drawing red lines against such properties because they are not a good risk. They refuse to issue mortgages against them, which strands leaseholders. Leaseholders cannot move up the housing ladder even if they are getting older and have greater income or if their family is growing and they want to move to a bigger property. The Leasehold Knowledge Partnership, which advises the all-party group on leasehold and commonhold reform, estimates that more than 100,000 properties are in that category and thought to be unsellable; Nationwide, one of the biggest lenders in the country, is on record as agreeing to that estimate. One of my parliamentary team has such a property, a flat in south London. In the last 25 years of his lease, the ground rent on his flat will be £180,000 a year. That is a long way in the future, admittedly, but it is an indication of the eye-watering figures that make lenders really scared to disclose the eventual costs to prospective buyers.
It is clear that the Government recognise that there are real problems at this end of the housing sector. Their consultation on leasehold reform was specifically about ground rents doubling and homes for sale on a leasehold basis. They have said that they will move against both, but they will take evidence in the meantime. A number of welcome initiatives have been announced to address many of the anomalies, including yesterday’s announcement by the Secretary of State on homes in the social rented sector.
The hon. Member for Worthing West (Sir Peter Bottomley), my co-chair on the APPG, has continually raised many of the outstanding problems of leasehold for a number of years. It is encouraging that the Government are moving on a number of those. Leasehold reform is long overdue. The Conservative Government tried to fix leasehold in 1993, and the Labour Government tried to fix it with the Commonhold and Leasehold Reform Act 2002. Neither was successful. It is more than time for movement now. Although the Minister is not directly involved in DCLG’s programme, I would welcome an indication of whether mortgage eligibility is on the Treasury’s radar and whether the Treasury, either separately or in partnership with DCLG, plans to deal with the problem and support DCLG’s proposed solutions.
The ambition of all parties is to support home ownership, but because of these anomalies, that is further away for many people than ever. I look forward to hearing Front-Benchers’ responses to points raised in the debate. From my point of view, leasehold reform is part of mortgage eligibility.
It is a pleasure to serve under your chairmanship, Mr Hollobone, and to follow the hon. Member for Poplar and Limehouse (Jim Fitzpatrick). I am pleased that the Petitions Committee has selected this issue for debate, and I commend my hon. Friend the Member for Sutton and Cheam (Paul Scully) on his opening speech.
The number of signatures on the petition and the impassioned terms in which it is phrased indicate people’s frustration and concern that a strong record of making rental payments is not taken into account when assessing creditworthiness. As my hon. Friend said, most young people’s ambition is to purchase a first home. They are frustrated that most mortgage lenders do not take applicants’ rental history into account, partly for the very good reason that credit reference agencies do not record rental payments.
A contract for the payment of rent is not a contract for credit. By and large, rent is paid in advance, frequently accompanied by a rental deposit. Nevertheless, a strong history of making rental payments on time is a good indication that an individual is capable of adhering to the discipline of making payments of sums due at the times at which they are due, which should be of interest to mortgage lenders. I therefore strongly support the proposition that credit reference agencies should record rental payments and take them into account. Not only might that assist in connection with mortgage applications, it would show a history of dependability that would open up other benefits, such as not requiring prepayment meters, making consumer credit easier, and better supporting tenants who wish to move into another rented property.
At present, only one credit reference agency, Experian, appears to have a model to enable rental payment history to be included in its credit scoring. As my hon. Friend has said, working with Big Issue Invest, Experian has developed a model called Rental Exchange, which allows large landlords—chiefly social landlords, but also private landlords with more than 100 properties—to report rental payments directly.
There are certain deficiencies in Experian’s scheme, however. The private rented sector is growing, and has now surpassed the social rented sector. The vast majority of private landlords have significantly fewer than 100 properties; indeed, research undertaken by the London School of Economics for the former Council of Mortgage Lenders found that only 7% of private landlords rented out five or more properties. If a landlord has fewer than first 100 properties, tenants who want to include their rent payment history on Experian’s credit score are required to pay their rent first to a company known as CreditLadder which my hon. Friend mentioned, which in turn pays the rent to the landlord and reports the payment to Experian.
This system raises a number of concerns. First, it introduces an additional artificial layer of bureaucracy into the relationship between landlord and tenant. Secondly, sums paid by tenants to CreditLadder are not covered by the Financial Services Compensation Scheme; CreditLadder’s website makes it clear that it is not regulated by the Financial Conduct Authority, although sums paid to it are paid into a ring-fenced bank account. Thirdly, it is not yet clear whether payment of rent via CreditLadder will have an effect on Experian’s credit reports. CreditLadder’s website makes it clear that it will take time for Experian to create a robust credit score based on rental data; until then, it will not use the data as part of the score. CreditLadder reasonably points out that simply adding rental payments to the report will help the lender to make more informed decisions about creditworthiness.
Despite those criticisms, it is welcome that at least one credit reference agency is beginning to record rental payments. It would be good if other credit reference agencies began to follow suit. The Residential Landlords Association, which my hon. Friend the Member for Sutton and Cheam mentioned and which is the leading private sector representative organisation, has suggested an alternative to CreditLadder’s means of recording timely rental payments, and I would be grateful if my hon. Friend the Economic Secretary took account of it.
The RLA has suggested the development of a new special rental standing order form to be used in the case of rental payments. The standing order form would enable payments to be made directly by the tenant to the landlord, and at the same time it would authorise the bank to notify the credit agencies that the payment has been made. That would cut out the cumbersome middleman procedure established by CreditLadder. It would also ensure that the payment was made directly by the tenant to the landlord, obviating concerns about financial regulation, and it would retain the link between the landlord and the tenant. I urge the Government to work with credit reference agencies, the banks and indeed the RLA, with a view to developing such a form.
I also invite the Government to work with the credit reference agencies to develop a web portal to enable individual landlords to register rental data. There would be every incentive for landlords to do so, given that in due course they would be interested in establishing the creditworthiness of future tenants, who might have reported via the same means.
This debate has highlighted a significant concern among a large section of the population who have reasonable aspirations to develop an improved credit history and ultimately obtain a mortgage on their own home. The Government were entirely right in their response to the petition to say that decisions about the availability of individual mortgage loans remain commercial decisions for lenders; of course that is the case. However, the Government would do a significant service to a large section of the public if they worked with the banks, credit reference agencies and landlords to encourage a new comprehensive method of recording rental payments, which would be of huge benefit to landlords, tenants and mortgage lenders alike.
It is a pleasure to serve under your chairmanship, Mr Hollobone, and I compliment the hon. Member for Sutton and Cheam (Paul Scully) on obtaining a debate on this petition. I also compliment the 147,307 people who signed it, including 145 people from my constituency of East Lothian. It is a timely petition that was curtailed by the arrival of the general election, so it would be interesting to see how many people would have signed it if it had flowed its entire length.
We are all aware that the financial crash, and indeed the role in the crash of reckless lending on housing in other countries, led to this problem. We are also aware that lenders sought security and safety in the securitisation of those loans, so they did not feel the risk of lending to high-risk borrowers. The result for people today is a tightening in the rules of borrowing and the imposition of affordability tests for mortgages. The link between a poor credit history and an inability to pay a mortgage was made, and in many people’s eyes it has been strongly established.
That brings us to credit reference agencies, which sit at the heart of this problem. We have already heard in a number of speeches about the need for a credit history in order to borrow a mortgage, which is a credit in its own right. In calculating the scoring, the credit reference agencies do not, by and large, take into account rental payments, and therein lies the problem. We have just heard imaginative ideas about how that can be put right, and it is important that we consider them, because the failing, which those who signed the petition are pointing to, is one of removal of choice from individuals.
If we go back a number of generations, the bank manager would have known the person to whom the money was being lent. As we moved forward, that role moved to the assistant bank manager and the lending manager. The process is now controlled by algorithms. Forms are filled in online, or filled in on paper and transferred online, and the decision about whether someone can have a mortgage rests with the algorithmic decision on their credit rating, on any court action and on any previous history that is registered up in the cloud.
The lack of individual input into that process means that many people with a long history of paying rent on time and in full are unable to take advantage of the financial sense that they have demonstrated, perhaps even over decades. We need a system that reintroduces an individual into the process, so that they can look at it. Paying rent is not a credit, but in the mortgage affordability test the payment of rent—weekly, monthly or quarterly—over a long period of time shows that the individual can afford that rent.
There are questions about whether or not prices rise, and about whether or not something catastrophic happens to the house someone is in, so that suddenly the roof needs repairing. However, many people who rent have taken out insurance for their possessions against theft, so to suggest automatically and across the board that those people who have paid their rent are unable to encompass the budgeting needed for a mortgage is a fallacy.
In addressing this matter, we need to reintroduce individual case assessment. It is not beyond the wit of credit reference agencies and mortgage lenders to do that, and they should examine that suggestion. The imaginative ideas that have been proposed can be looked at and developed. However, to write off many people who have such consistent evidence of being able to afford a mortgage, simply because the element of rent is not credit, is disingenuous. I would be grateful to the Minister if he addressed that.
It is a pleasure to serve under your chairmanship, Mr Hollobone; I think it is for the first time.
I congratulate my hon. Friend the Member for Sutton and Cheam (Paul Scully) on responding to the petition, which is on a very important subject, and I also congratulate other hon. Members who have spoken.
I need to declare my interests, as recorded in the Register of Members’ Financial Interests. I still have an interest in a company that brokers mortgages; I was a mortgage broker myself, and I hold the mortgage advice qualification, although I certainly do not practise day to day any more.
My immediate reaction to the proposition in the petition is, as others have done, to express my sympathy to those people who have signed it, and my understanding of their huge frustration at being unable to get on the property ladder and achieve their aspiration, which most of us in this Chamber have probably achieved and which previous generations have perhaps taken for granted, namely to own a home—their first home—so they can build a life for themselves. Indeed, we can have huge sympathy with the person who says they have paid £70,000 in rent.
My first point, based on my experience, is that rent payments are taken into account. We must distinguish between the initial decision in principle on application, which is normally automated and credit-scored, and further underwriting on a full application. If I want to have a rough sense of what I can borrow, I might get an agreement in principle from my bank for a certain amount. If I then find a property, have an offer for it accepted and go through the full application, as it is called, in my experience it is very rare, particularly if someone is a first-time buyer, that applicants would not have to provide bank statements. That was happening in 2004, when I started as a broker, and the main thing that underwriters are looking for on a bank statement is the consistent monthly payment of rent.
It is true that underwriters look at other things, and it is possible to tell a lot from a bank statement. I remember that before mortgages were heavily tightened up after the crunch—quite rightly so—underwriters would come back and say, “Can you ask them what these payments are?” and it would be discovered that they were for a debt that was not recorded on their credit reference, for example a debt from a casino. I am afraid that such a case would be declined.
As the hon. Member for East Lothian (Martin Whitfield) said, we do not have in-branch underwriting, typically; those days are gone. However, I think there is—and there should be—still a lot of manual underwriting on first-time buyer cases. The other point to make is that it has to be said clearly that someone paying their rent on time is not enough, because of other factors that may be in the background. Someone may pay their rent but be behind on paying off their credit card or in paying a utility bill.
The House of Commons Library briefing states that the Financial Services Authority—now the Financial Conduct Authority—conducted a
“detailed study into the predictive ability of applicants with poor credit history and found it to be a significant predictor and hence determinant of lending decisions: ‘Our findings show that the dominant characteristic present in all of the highest-risk lending combinations is whether the borrower has an impaired credit history.’”
If someone pays their rent, does not have bad credit and is on the electoral role—important for the credit score—they will probably get an agreement in principle. They will then go to a full application and their bank statements and so on will be assessed and the person who has the county court judgments and the defaults will, of course, be declined at that point, which is absolutely right.
I have mixed feelings about the exact call of the petition, but I have considerable sympathy with it and think that it presents a really good opportunity. I want to make a few points on the wider issue of mortgage availability. This month I received a copy of IFA Magazine, the main article of which is called, “Never Say Never Again”. That is a reference not to the “Thunderball” remake but to the possible re-emergence of sub-prime lending, which is a very serious issue. I quote Michael Wilson, who wrote the article:
“Quietly, almost surreptitiously, ‘impaired credit’ mortgages are coming back into the game—it’s just that you don’t see them advertised by the big players. Instead, alternative banks and pseudo-banks such as Masthaven or Pepper Homeloans or Magellan or Bluestone or Kensington Mortgages…are offering carefully risk-graded home loans to people who’ve had anything from a missed phone contract payment to a County Court Judgment.”
I remember, back in the days before the crash, the availability of sub-prime mortgages. There was an entire menu of grades of what were called adverse mortgages: light adverse, medium adverse and heavy adverse. Heavy adverse is, basically, “Do you have a pulse?” That was what it was like in those days. Extraordinarily, people who had bad credit, stretched affordability and a low deposit, wanting an interest-only deal, could get a mortgage, often even at a relatively competitive rate. The Government, through the regulator and the prudential authorities, should be extremely cautious about any return to that sort of risky lending to people who have failed to pay significant credit. Of course, there will always be discretion on relatively minor credit misdemeanours and so on.
We must think about greater access for, for example, the self-employed. I was on the Work and Pensions Committee before the election, and we had an investigation into the rise of the gig economy and a new breed of worker—they are called “workers”, with a capital “w”—who are self-employed but work very regular shifts and arguably have all the characteristics of employees but no employment contract. In my view, there have been abuses, because such workers do not get the security an employee would expect. In those cases, there is an argument that lenders should have much more discretion and we should not automatically say, as is usually the case with the self-employed, “Well, if you don’t have three years’ accounts, sorry, you can’t get a mortgage”. The world of work is changing, and lending needs to change with it.
The other issue, which I think will become even more important and on which we will get more correspondence, is lending into retirement. That is not necessarily lending to people who have retired; it is the opposite. If someone applies for their first mortgage at 50, as people do at the moment and will be doing more in the future, to defray the costs somewhat they might want a 30-year term. However, that would take them to 80, which is currently simply not be possible. Lenders would refuse outright to do that in almost any situation—even if someone had a gilt-edged pension agreed. We need to consider whether that is reasonable, given that we are going to be living longer and have a much higher statutory retirement age. Although we should always be as prudent as possible with lending, it is perfectly in order that someone, particularly someone younger, takes a longer term, perhaps even 40 years. For a 25-year-old, a 40-year term up to 65 on a capital repayment basis is perfectly sensible, obviously subject to all the other criteria being met.
Regarding lending in retirement, I went to a fringe event at a conference two years ago and the lenders were already thinking about people who have retired on good incomes. They might be 30 years from death and want access to credit. That will become a growing issue.
The point I most want to make, and about which I feel most strongly, is buy to let. My first speech as an MP, after my maiden speech, was on buy to let, and I said that we should consider things like a stamp duty surcharge and a tax on the interest relief. To my surprise, the previous Chancellor had the courage to introduce those measures—they are not exactly popular with some Conservative voters. We have mentioned the person who paid £70,000 in rent: they are paying a mortgage, just not their mortgage. They are almost certainly paying the landlord’s buy-to-let mortgage.
I have been to many events with buy-to-let landlords and defended these issues. I have nothing against those who invest in property. On the contrary, with the pensions system as it has been, it is understandable that people should invest, as their pension, in what they see as the safest asset, particularly when it has reliable rent income. However, it remains scandalous that a first-time buyer can only get a capital repayment mortgage, which is absolutely right—if someone takes out a debt they repay that debt, it is as simple as that—but it is still possible, almost as the default, to take out an interest-only mortgage for a buy to let. The criteria have tightened, but that issue is so significant because to calculate whether someone can obtain a buy-to-let mortgage, the key issue is coverage, which is that the rent covers the mortgage by, for example, 125%. That criterion will be met far more easily with an interest-only mortgage than a capital repayment one.
In my view, the bubble we built up in the property market would not have happened to the same degree if we had insisted on capital repayment, because far fewer landlords would have passed the test, prices would not have risen so steeply and some of the measures we have had to pass to calm the buy-to-let market might not even have been necessary. It beggars belief that we expect first-time buyers to repay the capital—as they should—but not landlords, who may own many properties.
We must remember that there is a moral issue here. When the banks crashed on the back of their own irresponsibility, the bail-out was funded by a national debt that is held by everyone. The property values of all those who own property, ultimately, were bailed out. The bail-out kept the bubble growing, in fact. If it had not been for the bail-out, we would have had an extremely deep recession, so it was the right thing to do, but we must recognise that it maintained the values of large portfolios—of all those who own property—but it is a cost borne by everyone, whether they rent or pay a mortgage. We therefore have a moral duty to try to find the best ways to encourage access to the property market and to overcome those problems, but we must not do that by returning to bad ways and ditching prudence.
It is a pleasure to serve under your chairmanship, Mr Hollobone. It is a privilege to follow the hon. Member for South Suffolk (James Cartlidge), who speaks so knowledgably about the subject, and it is a pleasure also that the debate has been introduced by the hon. Member for Sutton and Cheam (Paul Scully).
As a proud janner, I am pleased that the debate has been called by someone from Plymouth. Jamie Pogson is a Plympton resident, and it is good to see that angry janners who want to change the world can get out and, as he describes it in the Plymouth Herald, “have a rant” one morning and potentially change our housing system.
It is worth looking at the housing crisis, not only nationwide but in the far south-west and in Plymouth in particular. The crisis is such that in Plymouth the number of people living in the private rented sector is double the national average—32% compared with roughly 16% nationally. Some 22,000 people own their own home in the constituency I represent—just next door to where Mr Pogson lives—and that is 15% lower than the national average, and nearly 20% lower than the south-west average. I can understand why, therefore, Plymouth, Sutton and Devonport, South West Devon and Plymouth, Moor View are the top three constituencies for signatures to the petition. A real housing crisis is being felt in the far south-west, in an area where wages are low.
The aspiration that I think all hon. Members share—to encourage home ownership, to encourage people to invest wisely in their future and to provide a base for their family—can be acutely felt in communities such as the one I represent. With the current housing crisis, I think there is an agreed position that we need more affordable homes to buy, that we need affordable homes to rent, and that we need to create more of a market of part buy part let, which is especially important in helping people on low incomes to secure a stake in a property. They can build up that stake over time and use it as collateral to move further up the housing ladder, which is absolutely essential.
In some of the media coverage that surrounds this debate, Mr Pogson himself has picked up the points made by the previous speakers in relation to how the credit reference agencies work. Will the Minister look at whether the Treasury could provide greater encouragement to credit reference agencies and financial institutions to look at innovative solutions that could be added to the mix? The long-term benefits of people being able to take their rental record into account in purchasing a property are good not only for the economy and those individuals, but for the industry. A gentle nudge to encourage that sector could be looked at in particular.
In the Plymouth Herald article about Mr Pogson’s petition reaching 100,000 signatures after only three days, he spoke about his view of the system, and it might be worth reflecting on that. He said:
“Unless you’re getting handouts, wealthy or in receipt of inheritance it’s almost impossible”—
to buy a home—
“I want to really make a stand with this. The system is beyond a joke.”
It is certainly true that there have been improvements in the system. Initiatives from this Government, the coalition Government and the Labour Government have assisted at the edges, but there is still much more to do.
I would like to think that an angry janner getting out of bed one day and wanting to change the world could produce a situation where thousands of people who are renting at the moment might be able to buy a house—all because of Jamie Pogson tabling that petition.
This debate shows the value of this House listening to those who sign petitions. I have just tabled a petition on saving amphibious warships that has reached 3,000 signatures after only a few days. Those are 3,000 signatures on an issue that affects the three Plymouth constituencies, and that is a sign of just how powerfully felt such issues are, not only in Plymouth but across the country.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I appreciate the work of the Petitions Committee and the hon. Member for Sutton and Cheam (Paul Scully) in particular in bringing this debate to Parliament. As a number of Members have said, this debate is important, and its tone chimes with the concerns a number of the constituents who come through my door and the people who talk to me have expressed about the housing market, so this debate was a good one to bring to Westminster Hall.
I will begin by discussing the issues facing young people in particular. The Chancellor has been making noises recently about trying to improve life for millennials—I hope he does—but I am concerned that he may think that the implementation of a railcard for under-30s will do it. I hope he will go much further, because a railcard will not cut it. A number of issues face millennials, who are people born between 1980 and 1995. They are up to 35 years old, although there are various definitions. In 2005-06, 24% of 25 to 34-year-olds were privately renting. That figure has now risen to 46%. In 2016, 59% of the households headed by millennials were privately renting.
The private rental market is expensive, which particularly hits young people, especially when we consider that young people born between 1980 and 1985 are earning £40 less, once adjusted for inflation, than those born 30 years earlier. It is a significant issue that they are having to put so much of their income into privately renting and are unable to save as a result. People talk about how millennials just sit around and do not do any work, but they work as many hours as previous generations did, but for less money. That is a real concern, especially given their outgoings.
Issues to do with the private rental market affect younger people, but they also affect people of all ages. The gentleman who organised the petition said that he spent £70,000 of his income on rent, and that money has not gone to providing a roof over his head that will continue to be a roof over his head, because his landlord could decide that he no longer wants to rent that property out. That generation do not have the security that previous generations may have had. In social renting, properties are much cheaper to rent than in the private rental market and people have a much better guarantee that they will be able to stay for the long term.
I have highlighted the specific problem facing millennials, but I want to raise a number of other issues. I read an interesting piece the other day about how it is not good to save at the moment. If someone puts their money in the bank, it shrinks simply because it is in the bank and interest rates are lower than inflation. It is difficult for people of any age to save, because their money will not make money. If someone wants a deposit for a mortgage, they have to have a chunk of cash, and they need more than they used to need, because the money will depreciate while it is in the bank. That is a real concern.
Another factor preventing people from building a deposit is low wages. There has been a real lack of wage growth. If we compare the position for non-retired households before the financial crash with their position now, such households are not earning more in wages than they were a decade ago. For folk trying to build up enough savings for a deposit, that is a major problem. There are a number of problems with how the mortgage market works and with access to mortgages. For a start, people need savings. I know that there are Help to Buy schemes. When we bought our house in 2009, we did it on a shared equity scheme, which was incredibly helpful. It was a developer-run scheme, rather than one run by any Government. It was very useful; it was the only way we could get on the property ladder in 2009, because we did not have enough savings. Those schemes do not operate across the board and not everyone has access to them. Young people in particular cannot access them all very easily.
I am pleased that Help to Buy schemes have been put in place by the UK Government and the Scottish Government. The Scottish Government have introduced a Help to Buy scheme with open market access to shared equity. The scheme is not just for new properties; it allows people to buy a property that is a bit older. It allows people on median incomes—not necessarily the poorest incomes—to access the housing market. Such schemes have been successful in Scotland and have had a positive effect in helping people to secure a house that is not necessarily new. Older houses may have more of a buying history, so they can be a safer bet because people have a better idea of whether the house value will depreciate in the near future, unlike with new houses, where people do not know whether they have been priced correctly.
The Scottish Government have done a number of positive things. Through their Help to Buy schemes, 23,000 households have been helped into home ownership since 2007. The open market shared equity scheme has received £70 million this year from the Scottish Government, so it is hugely positive. We will deliver at least 50,000 affordable homes in Scotland by 2021, and that policy has been backed by £3 billion.
One of the most important things the Scottish Government have done in the past decade is change the attitude to social housing in Scotland. We have taken a different tack from the UK Government. We have increased significantly the amount of social housing builds and have reduced the ability of people to buy their social house. I understand that the Conservative Government do not necessarily agree with that, but it means that we have been able to begin to build our socially rented sector back up. That has meant that more people are socially renting, and they have the ability to build up their savings pot as they are not paying unaffordable private rents. That is what my family did. We were in a socially rented multi-storey block and we were able to build up some money for legal fees and others things when we bought a property. Even if someone does not have enough for a deposit but can get involved in a shared equity scheme, they still need some money to put towards the fees. Those things are hugely positive, and the move towards more social housing in Scotland is a very good thing.
On the issue of creditworthiness, the hon. Member for Sutton and Cheam mentioned the Rental Exchange scheme by The Big Issue and Lord Bird, which is a genius idea. I cannot believe people did not think of it sooner, because it is a great way to ensure that social rent payments in particular are taken as evidence of creditworthiness. Evidence of creditworthiness is a real issue that has been touched upon by several Members. Having no credit score, or a low credit score, does not mean someone cannot afford to pay a mortgage. It simply means they have not built up a credit score. Peers of mine, for example, have had to take out a credit card to build up a credit score. We do not want people having to take on debt simply so they can get a credit score in order to get a mortgage in future. There are better ways to do that. The Rental Exchange scheme is brilliant, working with people on the lowest incomes, particularly those in social housing. It would be nice if even more social housing providers got involved in that scheme and it were widened out so that it can be accessed by more people, because it is hugely positive.
Other things around creditworthiness and the way that credit scores work are a significant problem. One Member mentioned the poverty premium and the additional amount of money that people have to pay as a result simply of having a lower income and lower savings. If someone wants to get a loan, they go to various websites to see how much they can get. All the websites provide an indicative rate, which is probably not what someone will actually get because the bank or institution will then offer something that it decides is the most appropriate thing.
To get a quote for an actual rate, the bank needs to do a credit check, which impacts on someone’s credit score, making it more difficult for them to shop around. The people on the very lowest incomes cannot go to three different banks and get three different quotes and then three different percentages for the £2,000 that they want to borrow to buy a new dishwasher, washing machine or whatever it is that they need, because that will have an impact on their credit score. There is an issue with the way in which credit rating agencies work because of the need for the credit assessments to have an impact on the score. In fact, it impacts most negatively on the people who most need assistance with finance and who could do with having a better rate because they do not have the ability to shop around. I know that is slightly off-topic, but I wanted to raise the issue in the context of creditworthiness.
I feel the frustration of the gentleman who started the petition, as do the 140,000-odd individuals who signed it, as well as thousands and thousands of people across the UK. If we look at the people who are young, who are around my age and who are millennials, I know many who have come to the conclusion that they will never be able to afford to buy a house. It will simply never happen because they will never have the money to do so.
If private rentals were more secure and affordable, there would be less of a problem but, because private rentals are insecure and rents are sometimes sky high and people have to pay a huge amount of their income on rent, there is a problem. People cannot even aspire to own their own home. Young people are criticised for spending too much money on coffee, and we regularly see a meme doing the rounds on Twitter: “We’re buying all the £3 coffees, because you’ve got all the £3 houses.” That sums up the frustration felt by young people. I am not saying that people who cannot afford mortgages should get mortgages, but we must help the people who can afford mortgages but who do not have the creditworthiness.
The issue is not about encouraging debt, but about greater inclusion and affordability for young people, or for anybody caught up in this vicious circle of very high rents and squeezed budgets, which means they cannot save for deposits.
I absolutely agree with that point. In fact, some of the case I have been making is about the very opposite of encouraging debt. I want people to build up a more positive credit score without having to take out a credit card and make payments, because for some people that might be too much temptation. Positive moves could be made by the Government and credit ratings agencies to ensure that more people can get access to the finance that they need and can afford, rather than finance that is out of their reach.
It is always a pleasure to see you in the Chair, Mr Hollobone. It has been a particular pleasure to listen to this debate. I congratulate the hon. Member for Sutton and Cheam (Paul Scully) on presenting the e-petition this afternoon and I congratulate all of the people who were able to sign it and put their views on the record.
Being able to respond to this debate as the shadow Economic Secretary is a pleasure. It is one of the best portfolios in politics because the issues that the Minister and I cover are interesting and important. It is a portfolio where we learn things. Also, it is the best because of the fact that the UK is the world’s leading financial centre. It is a pleasure to interact with that, to learn more about its dynamism and to see the advantages that that brings to the UK.
This debate brings us to one of the central issues that we should discuss more in this country. How can we combine being the world’s leading global financial centre with a situation in which so many of the people of this country, so many of our constituents, are financially excluded or marginalised, and where more than a million are unbanked? Crucially, how is it that, with this incredible dynamism that we possess, we have allowed a situation to occur where the poorer someone is, the more financially excluded they become? If I did not spend all of my time in the City listening to City institutions and their legitimate concerns about Brexit—I am sure that is true for the Minister, too—this is the agenda we could spend more time talking about. It is a personal issue for me. My mum worked for Provident, the noted door-to-door lender. I spent much of my childhood learning about credit and creditworthiness, how people need access to credit and where they get it from. It should be a much greater priority for our debates in the House. It is certainly right to start the debate with a discussion about how it impacts on the housing market.
The hon. Member for Sutton and Cheam said we have a broken housing market, and I certainly second that; so many of the country’s problems come from that dysfunctional market. As the hon. Gentleman said, a lack of supply is at the heart of the problem, but we need to be pragmatic and recognise that the private sector alone cannot build sufficient homes. The operation of right to buy without replacement is a problem. I support right to buy because I want working class people to own their own homes, but clearly we have to replace the units that we lose with like for like, and we have never done that. We have a poor planning framework that hands far too much power to developers. Frankly, we have to blame ourselves. There is a lack of courage in political discourse when it comes to things such as new towns and tackling the green belt. We have failed to remediate brownfield land. There is a lot of blame to go round for all of us to share.
The problems of the housing market are extreme. They defeat benefit reform, hamper labour mobility and ruin lives. Through some of the churches I am involved in, I am aware of families less than a mile from this building made up of couples and four or five children who are living in one room. Clearly, that is not a situation that any of us should be happy or satisfied with, so I particularly welcome the chance to respond to this debate and to the sentiment that has been expressed so warmly by all Members today.
There are 11 million renters in the UK, and that number is growing. A large rented sector is not necessarily a bad thing. Germany, for instance, has a well-functioning, well-regulated private rented sector, but we get the worst of all worlds. We have a very large private rented sector, but without the secure regulatory environment to protect the tenants in it. Britain’s renters deserve fair access to credit and much better access to the housing market. As has been said, up to 80% of renters have seen their credit rating rise when they have been able to include their rental payments in their credit score. Crucially, it has added a digital footprint, which is so important these days, for many people who simply did not have one before.
My hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) talked about ground rents and leasehold reform. I am firmly in agreement with him. It is a particular problem in the north-west of England, where I have used the phrase “legalised extortion” at times, because I am not able to see what service is being offered for many of the huge payments now levied on people through the leaseholds they signed up to. That will stop the housing market functioning effectively, because no one will want to take on such a liability when they realise the scale of it. The right hon. Member for Clwyd West (Mr Jones) gave support in principle, but said that there are some complexities. He was absolutely right to talk about the CreditLadder system, but fundamentally I think he was saying that there is a role for the Government in trying to solve this problem, which is very welcome.
My hon. Friend the Member for East Lothian (Martin Whitfield) rightly talked about past personal relationships. A Conservative member of the Treasury Committee recently told me that when he was a student his bank manager not only wrote to him to warn him about his spending, but copied the letter to his father as well. I am not sure that any of us present today, even at our ages, would wish for that to happen. His point was that there has to be an individual assessment of a person’s needs, outgoings, liabilities and expenditure.
The hon. Member for South Suffolk (James Cartlidge) referred to his experience as a mortgage broker, which was very interesting, and said that many rental payments are already taken into account. I think we need to look at whether we can improve people’s credit ratings more broadly with such initiatives. I thought that his comments about the future of work, lending into retirement and buy-to-let were absolutely right. I will not give him any more praise or he will probably be accused of supporting Venezuelan-style socialism, which would not help his career at all, but I thought all his points were very well made.
My hon. Friend the Member for Plymouth, Sutton and Devonport (Luke Pollard) talked about the impact of this issue on his constituents, 32% of whom are in the private rented sector. Clearly, if a third of his constituents are in a poorly regulated form of tenure and are not getting the proper response that they need, that is a problem. He talked about how this e-petition could make a difference and managed to plug his own e-petition, which I thought was particularly skilful and well done.
The Scottish National party Front-Bench spokesperson, the hon. Member for Aberdeen North (Kirsty Blackman), made many points that I agree with. She talked about the impact on young people in particular. There is an under-remarked on phenomenon in that the burden of student debt, combined in most parts of the country with house prices that, in real terms, are up to three times what they would have been in the early ’70s, and higher pension contributions, which are a necessity based on the demographic profile of the country, produce a difficult scenario for a lot of people. Older generations are perhaps not aware of the burden of that, and it makes the affordability of things such as housing scarcer still.
The hon. Member for Sutton and Cheam mentioned the Bill introduced by Lord Bird in the other place, which would essentially put the sentiment of this e-petition into law. I met Lord Bird recently and had a chat about the principles behind the Bill. If you will excuse the pun, Mr Hollobone, it is to his credit that he has tabled the Bill. Clearly, we would all like to see a concerted attempt to tackle the root causes of poverty in this country. There will be disagreements about aspects of Government policy that the Opposition would say have exacerbated some of those problems, but such popular cross-party consensus proposals can help us find a way forward.
There is so much more that we can do, not only on creditworthiness but on things such as using smart meters to end the poverty premium on gas and electricity, which we have talked about many times in the House. We still need further action on that. We have proposed initiatives such as capping the cost of credit card fees so that no one pays back more than double the principal sum that they borrowed. That is not writing off debt, but making it clear—as other countries have—that there has to be a framework that protects people in persistent debt so they are in a position to get through their problems eventually.
We should also have a much stronger focus on financial education in this country. Frankly, very few people really understand what an annual percentage rate is telling them. It looks frankly inevitable that the Monetary Policy Committee will put up interest rates, but a lot of people may be unaware of what that means for the debt that they have already taken out in mortgages.
When I talk to people in the City about some of that agenda, their eyes light up with passion. Clearly, there are a lot of people in this country with the expertise, passion and commitment to see progress on those things. We must talk not just about the effect of Brexit on financial services but about how we can use the expertise and skill of the people in this country, who hopefully will stay, to tackle some of these long-term problems.
I am absolutely happy to pledge in principle the support of the Opposition Front Bench for the kind of initiative that this e-petition suggests, and for Lord Bird’s Bill, which seeks to put it into legislation. That seems a sensible way forward, and I hope we can all agree on it.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I thank all those who signed the petition—more than 140,000 people did so—and Members from across the House for this good-natured and constructive debate. The petition shows the importance of debating these issues, which clearly resonate with many people. It is right that the House should consider them.
I thank my hon. Friend the Member for Sutton and Cheam (Paul Scully) for his very helpful suggestion of a market-based solution for fintech, and I am happy to discuss that with him further. I also had a very constructive meeting with Lord Bird, who has done a lot of important work in this area, and came forward with important suggestions. The hon. Member for Plymouth, Sutton and Devonport (Luke Pollard) also demonstrated a degree of cross-party consensus in terms of how we move forward on these issues.
To address directly the issue that the petition refers to—the extent to which paying rent should be evidence of affordability of a mortgage—it is important to note that affordability assessments are not just based on one factor. That is why mortgage affordability assessments include a requirement to assess possible changes to income. It is responsible for lenders to have a long-term perspective when making assessments.
Lenders can currently include payments of rent as a factor, but it is right to highlight that the Financial Conduct Authority independently makes those affordability assessments, or sets the terms relating to affordability for firms. My hon. Friend the Member for South Suffolk (James Cartlidge) drew on his professional experience and expertly explained that a wider suite of issues affects affordability—it is not just one’s past ability to pay rent.
Let me address the issues that hon. Members raised during the debate. My hon. Friend the Member for Sutton and Cheam called for reform of stamp duty. He will be aware that we are very close to a Budget, so I will take that as a Budget submission; I am sure that was the spirit in which he offered it to the House. It is obviously important that we balance people’s right to buy a second home or to buy to let against the impact that that has on other people’s ability to get on to the property ladder. I think that was the point that he was making. He also mentioned supporting the Rental Exchange scheme, which has already lifted 4.2 million social housing tenants into better credit. I encourage housing associations to play a more active role in raising awareness of important schemes such as that.
The hon. Member for Poplar and Limehouse (Jim Fitzpatrick) raised, with great authority, the issue of ground rents. The Department for Communities and Local Government has published a consultation, as I am sure he knows, on that important subject. I assure him that the Treasury will take an active interest in the course of those discussions, but he can probably get a flavour of the Government’s position from the comments of the Secretary of State for Communities and Local Government, who said that too many homebuyers are being exploited. That goes to the heart of the hon. Gentleman’s concerns.
As a result of the Government’s Help to Buy scheme, a lot of Government money—taxpayer’s money—has gone into the pockets of developers, who are taking advantage of the good Government policies that encourage first-time buyers. They are taking that as clear profit. I know that the Government are very interested in that, so I look forward to seeing what they do in the Budget.
I am happy to alert the Housing Minister to the hon. Gentleman’s concerns, but more than half the homes triggered by the policy are new, so Help to Buy has helped with the supply issue. I will raise that point with the relevant policy Minister.
My right hon. Friend the Member for Clwyd West (Mr Jones) asked why the Government are not solving the problem of including rental payments within credit scores through the standing order system. I encourage any stakeholders with views about how best to encourage rental payments within credit scores to write to me about that. Perhaps my right hon. Friend and I can have a further discussion about that point.
My hon. Friend the Member for South Suffolk said that credit scores are a good predictor of credit risk, and I agree. That is why capturing a history of payment on time in people’s credit scores will help lenders make better decisions. My hon. Friend’s point is very pertinent. He also mentioned the ability of self-employed people to get a mortgage. Mortgage regulation means that the self-certifying mortgages seen before the financial crisis are no longer available, and I think he and I would agree that that is a good thing. However, some lenders will accept relatively short payment histories—12 to 18-month periods—as evidence of income, which suggests constructive engagement on that point.
My hon. Friend also mentioned lending into retirement. There is no reason why older customers could not obtain a mortgage if they could demonstrate their ability to repay. The FCA continues to consider how the financial services sector can better work with older people through its ageing population strategy, which was published in September.
The hon. Member for Aberdeen North (Kirsty Blackman) raised the issue of the cost of living: people paying rent cannot save for a mortgage. The Government have clearly taken some measures in this space, such as the crackdown on payday loans, which was widely welcomed across the House. The FCA is reviewing the high cost of credit and the car finance markets, as well as issues such as persistent debt in the credit card market. There will be further updates in 2018.
The hon. Member for Bath (Wera Hobhouse) made an intervention about not encouraging debt. That emphasises the importance of the affordability assessments for mortgages being based on a holistic view of an individual’s finances, which in a way goes to the heart of the point that drove the petition—one cannot look at rental payments; one needs to take a holistic view in order to address the point that she pertinently intervened on.
The shadow Economic Secretary, the hon. Member for Stalybridge and Hyde (Jonathan Reynolds), raised the issue of housing supply. We very much recognise the imperative of housing supply. That is why the Government launched our housing White Paper in February, which proposed an ambitious package of long-term reform: releasing more land for homes where people want to live; building the homes we need faster; getting more people building, and supporting those who need help to buy. A suite of measures in the White Paper already speaks to many of the issues to which he referred.
Those leasing their home face the challenge of saving for a deposit while paying rent. That was the tenor of much of what was raised by colleagues across the House, and the Government very much recognise that through policies with which Members will be familiar: the Help to Buy scheme, which has helped with in excess of 320,000 housing transactions, more than 270,000 of which were for first-time buyers; and the help to buy ISA and the lifetime ISA, which both top up savings for a deposit to buy a first home.
Helping individuals to save for a deposit, however, will not address the problem on its own. That is why the Government intervened through the Help to Buy mortgage guarantee scheme, to ensure that the mortgage market works for people who rely on high loan-to-value mortgages. The Government also committed an extra £10 billion to the Help to Buy equity loan scheme.
Fundamentally, however, we also recognise the need to build more homes. Since 2010 significant progress has been made, with almost 900,000 homes built, including 300,000 affordable ones. The White Paper sought to address that and to accelerate the pace at which homes, including affordable homes, are built.
Turning to the specifics of the petition, the Government agree that a history of paying rent on time is a factor that lenders can consider when assessing creditworthiness, but it is a factor alongside others—not the sole factor to take on board. It is important to stress that mortgage regulations do not prevent lenders from taking into account rent payment as one of the criteria on which to assess affordability.
I therefore want to outline some of the opportunities that exist for connecting housing associations and others with lenders—my hon. Friend the Member for Sutton and Cheam focused on that in his remarks—and how we encourage them all to work to build the profile of those who are renting and seeking to build their mortgage history. The diverse nature of the mortgage market means that prospective borrowers should shop around to take advantage of the variety of options that are available. It is also important to highlight the reforms that took place to prevent the poor lending practices seen before the crisis. Again pertinently, my hon. Friend the Member for South Suffolk highlighted that in his remarks—it is important for us to take on board the lessons of the financial crash of some time ago.
Today, to address such concerns, the banks are required to conduct a comprehensive examination of an individual’s expenditure and income, and an interest rate stress test of that individual’s ability to make repayments. I hope that is one of the measures that will satisfy the concerns expressed by my hon. Friend. Overall, the changes are designed to ensure that the problems of the past are not repeated, but that means that the bar for getting a mortgage can be higher.
My right hon. Friend the Member for Clwyd West mentioned opportunities for making better use of rental data in creditworthiness assessments. Options are available that allow renters to ensure that their rental history is captured in the information that credit reference agencies provide to lenders. That has the potential to improve the chances of someone getting a mortgage. He correctly cited the example of Experian and the potential for housing associations and credit reference agencies to work together to build more examples than the existing Experian one.
Part of the problem is that awareness of such schemes is low. The Government would like take-up to be increased and more ways to develop such models. I am happy to discuss the issue with my right hon. Friend. It is important to do things in a way that works with and builds on existing systems and processes, to avoid increasing costs for business and making it more expensive or difficult for people to access mortgages.
In the social housing sector, I want landlords to play a more active role in increasing awareness and take-up of the existing options. In the private rented sector, as well as the social housing sector, technology and innovation should be pivotal. The open banking changes, which will come into force in January 2018, will help to open up access to our data in a secure way, leading to all manner of innovations that will make it easier to build the creditworthiness models that have been discussed.
To conclude, although it is encouraging to see the number of mortgages granted to first-time buyers, now at the highest levels since the financial crisis, it is clear that many people still struggle to make the first step on to the housing ladder. Lenders and credit reference agencies being able to access data relating to a prospective borrower’s history of paying rent will benefit both the borrower and the lender. There are already private sector solutions, some of which we have heard about in the debate. I am keen to look for ways to raise awareness of those, and to look at how we use open banking to open up further possibilities in future. We have had a very constructive debate and I look forward to having further discussions with Members in the coming weeks.
The debate today has been very constructive. I hope the petitioner realises that the fact that we have gone through it to reach agreement in about an hour and a half, rather than taking the full three hours, is no reflection on the importance we attach to the petition and the issue. I am sure that a lot of people were detained by listening not only to the Minister for Transport Legislation and Maritime on Second Reading of the Automated and Electric Vehicles Bill, but to the important statement made by the Prime Minister earlier.
We have had some great contributions. The hon. Member for Poplar and Limehouse (Jim Fitzpatrick) talked about the ground rent issue, and there has been some agreement on how we might make the system work. My hon. Friend the Member for South Suffolk (James Cartlidge) has a knowledgeable background, and that illustrates the need for a market-based solution to take into account all the things he said.
The hon. Member for Plymouth, Sutton and Devonport (Luke Pollard) mentioned a newspaper article and I did a quick search for it. Jamie Jack Pogson was talking about how surprised he was that the petition was so successful, and he was quoted as saying:
“It was only a little rant I was having first thing in the morning on the way to work.”
Frankly, I could have written that about my career path to this place. I hope that shows anyone who is thinking about starting a petition how they can change things—they can have a little rant, get out and do something about it.
That is the strength of the petition system. These debates are some of the most watched in Parliament. We look at Prime Minister’s questions and all sorts of other things, but petition issues such as the one we are discussing are the ones that people want us to raise. I therefore thank all my colleagues very much for a constructive debate, and I thank the Minister for the positive way in which he has responded. I know that he will take the issue away and consider a proper, long-term solution.
Question put and agreed to.
That this House has considered e-petition 186565 relating to eligibility for mortgages.