The Government has defeated Labour proposals to amend the Financial Services Bill so lenders are required to advise borrowers about potential interest rate changes and the likely impact they could have on the affordability of their mortgage.
Tabled by Shadow Treasury financial secretary Chris Leslie, the amendment would have required the Treasury to bring forward proposals for the move within six months of the bill becoming law.
Speaking in the House of Commons, Treasury financial secretary Mark Hoban said the change was unnecessary because the FCA would be able to require providers to supply “adequate information that is fit for purpose”, adding that putting the explicit requirement in the bill was unnecessary.
He added: “A number of lenders already provide information to borrowers about the impact of rate changes. People who come off a fixed-rate mortgage will get information to help with that from their lender. The mortgage market review is currently out to consultation. One of its provisions requires lenders to think about the impact of interest rate increases on the ability of borrowers to service their mortgage debt.”
He said: “We should be creating a framework within which technical experts can exercise their discretion, in a suitably restrained way, and leave them to get on with the job. We should not provide them a laundry list of things we want them to do.”
Speaking earlier in the debate, Leslie said the proposal was a “stitch in time” to protect consumers from large rises in the cost of their mortgages.
He said: “People may say where is the problem because rates are so low, largely because the Bank of England has been printing money. But the Governor has been warning this is an unsustainable situation and rates will normalise. My worry is many consumers up and down the country may be under the impression this is a normal period and it is not. If mark-ups banks charge on borrowing do not come down as the base rate and Libor rises then the rates our constituent pay could be much higher, around 7 or 8 per cent.”
The amendment was defeated by 290 votes to 215.
Treasury select committee member Mark Garnier raised concerns about how banks could deliver the statements. Conservative MP Alun Cairns agreed saying it would be very difficult for institutions to gauge the impact of rate changes, making the idea “meaningless”. Leslie said banks could provide information in a similar manner to pension projections.
Liberal Democrat MP and member of the bill’s public bill committee Lorely Burt was a mortgage adviser before she become an MP. She said the amendment was “superfluous”. “This is something any reputable mortgage company should be doing anyway. It is not in their interest for consumers to take on a mortgage they would not be able to repay should economic conditions worsen,” she said.
However, she backed calls from Leslie for lenders to be encouraged to warn borrowers of the impact of any rate changes. Hoban would not back the call but said it is in the interests of lenders to make sure loans are repayable.