My Lords, Amendment 49A is about mid-term changes to a contract. Therefore, this is not about things that were known at the beginning; it concerns the situation where a contract changes.
The intention behind the amendment is to deal with the situation where it is no good telling someone to shop around and find an alternative contract when some part of the original agreement, such as the interest rate, changes and either that person would incur a large financial penalty for doing so—the equivalent of an exit fee—or at that moment there are no other financial products around equivalent to the original one. There may be no such alternatives—perhaps because there is a mortgage famine, although there was not when the mortgage was taken out. The person’s employment status may have changed and therefore they cannot negotiate the same deal. They may have a few more children and so their outgoings are higher and, again, they cannot negotiate the same mortgage as they had to begin with. Alternatively, they could simply have retired and therefore find it very hard to negotiate a new mortgage. Also, annuity rates change a lot because circumstances may have changed.
Amendment 49A would not make the original terms of the deal necessarily unfair. It is not saying that it cannot be possible to change a contract, but it would seek to put the consumer back in the position where they would have been had the contract as made with and understood by the consumer been honoured. The amendment does not cover interest rate increases where those were part of the deal; it is where a provider seeks to change a part of the contract and where that leaves the client worse off because they cannot exit without a penalty. There is a contrast with the example of our house, which we keep going back to; if a cleaner says that they can no longer clean the house at the agreed price, you end the contract and find another cleaning firm. You can go elsewhere to get your house tidy, but that is not the case for financial products, where the exit fees, or changes in annuity rates, can mean a real
loss from having to withdraw from the contract or where there is no other product available at that time, perhaps because of something in the market or one’s own circumstances.
Mortgage prisoners are the best example of the detriment that we seek to avoid. I am sure that everyone in the Committee will recall the Bank of Ireland example in March 2013, when the bank invoked a small part in its contract, citing exceptional circumstances, putting up the interest rates of more than 10,000 customers who had tracker mortgages that were supposedly going to be linked to the Bank of England base rate. That had gone up by 0.5% but the Bank of Ireland’s tracker rate went up by 4.49%. The issue is that consumers were essentially locked in to those payments at the time, because there were no competitive rates around where they could have taken their mortgage.
Amendment 49A is to ensure that, when the terms vary from those that have been mutually agreed, and when the consumer cannot leave the contract without a penalty, they must be protected by the provider. It is obviously vital for home buyers, whom we know that the Government are rightly keen to tempt back into the market at the moment, but it is also important for confidence in the financial industry, which, as I said, has some way to go before it reacquires our affection. I beg to move.