The Co-chair of the All-Party Parliamentary Group on Fair Business Banking (APPG) has called on regulators to protect consumers and small businesses by banning the sale of debt to unregulated and inactive lenders.

Charlie Elphicke MP and Martin Whitfield MP co-sponsored a main chamber debate entitled ‘Mortgage Prisoners and Vulture Funds’ which acknowledged that the practice of selling mortgages and unregulated commercial loans to unregulated funds has been creating mortgage prisoners, exposing businesses to asset stripping and threatens to continue to create further mortgage prisoners and risks to businesses.

The APPG said that there is a concern that mortgage prisoners are being exploited by such unregulated funds by being kept on high standard variable interest rates and therefore denied the opportunity to take advantage of historically low-interest rates or fix their mortgage interest payments to gain certainty over their mortgage payments.

Further concern centred on the analysis that many of those unregulated funds pay little or no UK tax while depriving citizens of opportunities and in many cases their homes, it was also suggested that that HM Treasury should immediately require UK Asset Resolution to cease selling mortgages to any unregulated entity with the consideration that HM Treasury and the Bank of England should take all possible measures to ensure that mortgage prisoners are given access to new deals and fixed interest rates, and that banks cease discriminating against mortgage prisoners by offering them less favourable mortgage terms.

The APPG estimates that there are around 200,000 mortgage prisoners across the UK who are trapped with inactive and unregulated lenders and are unable to take advantage of historically low-interest rates. The mortgage prisoners are trapped into paying higher rates of interest to their borrower because they cannot meet affordability tests, brought in after the financial crisis, despite making payments on their current, higher interest rate mortgage.

This has caused problems for borrowers who have found their debt sold on to unregulated private equity firms that do not offer new mortgages or more affordable rates.

Kevin Hollinrake MP has called for the creation of a new tribunal to protect SMEs who have disputes with major banks or other financial services firms. His comments followed a cross-party motion which aimed to step up the pressure on the Financial Conduct Authority (FCA) and the Treasury to act to free ‘mortgage prisoners’ and protect SMEs from asset stripping by unregulated lenders. The APPG estimates that there are around 200,000 mortgage prisoners across the UK who are trapped with inactive and unregulated lenders and are unable to take advantage of historically low interest rates.

Hollinrake said “The FCA must now act quickly to free the mortgage prisoners and outlaw the sale of debt to unregulated and inactive lenders. SMEs must also be protected by legal requirements to treat SME customers fairly and must be given access to an independent and fair Financial Services Tribunal.cIt is shocking that these mortgage prisoners and SMEs, despite doing nothing wrong and being up-to-date with repayments, have been sold down the river.”

“The FCA must now act quickly to free the mortgage prisoners and outlaw the sale of debt to unregulated and inactive lenders. SMEs must also be protected by legal requirements to treat SME customers fairly and must be given access to an independent and fair Financial Services Tribunal.”

Martin Whitfield MP, Vice-Chair of the APPG on Fair Business Banking, said: “The sale of debt to ‘vulture funds’ represents a systemic failure to effectively protect consumers and businesses from predatory practices. There must now be collaborative action from the regulators and government to find a solution to help these individuals and SMEs across the UK.”