Tackling Treasury Minister Mark Hoban on bank charges, savings, mortgages & more
Financial Secretary to the Treasury Mark Hoban is the man in charge of banking, saving and financial services for the government. I went for a one-on-one interview/ meet with him a couple of weeks ago armed with your questions on mortgages, pensions, savings, debt advice services and more.
The full transcript is below – there’s lots of interesting stuff in there. I’ve just picked out a couple of the most interesting points (although do let me know what you found most revealing via the comments at the end):
One of the things that is important is that we carry out a broad economic policy which means that interest rates are kept as low as possible for as long as possible" – this was said in the context of mortgages when I asked him what he thought low interest rates would mean for savers.
On bank charges, I asked him about some banks still charging £35 a pop. He said:
I think we’d like to see more movement on a voluntary basis, having the banks tackle this problem, but we’ve made it clear that if that doesn’t work, then we will legislate."
To skip to different topics please use the anchors below:
Here’s what he said in full…
(This has come from a transcription service and while we believe it to be an accurate account we cannot validate it).
Martin: One of the big subjects is what I call the mortgage time bomb. We’re in the position where lots of people are struggling to remortgage because the LTV demanded is high, house prices have dropped, the market is nowhere near as competitive as it used to be and at the same time, while they’re feeling relatively comfortable now because their rates are set at four or five per cent above base rate and base rate is at half a per cent, if rates jump back to the traditional 5% type level, they’re going to be locked in on nine per cent, ten per cent deals that they simply can’t remortgage from. Do we not run the risk of a time bomb here, of people simply being unable to afford their mortgages because they’re far too expensive and shouldn’t we be doing something now, rather than waiting until that happens and what do you plan?
Mark Hoban: I think you’re right. I mean, I think a lot of people now are in positions where because of the low base rate, their mortgage payments are affordable but the way in which the recession runs its way through, people are working less, doing less overtime. So we’re very conscious of this issue and, of course, one of the things that is important is that we carry out a broad economic policy which means that interest rates are kept as low as possible for as long as possible. If you compare where you’re at in the UK to the markets elsewhere in Europe, if we hadn’t taken our action on fiscal policy, we’d have faced higher market rates of interest, which would have fed their way through to mortgage payments.
Martin: I understand that, but despite the historic low base rate, at some point, they will go back and what I’m most concerned about is this margin over base rate that people are now paying on their mortgages and the inflexibility of the market for people to be able to move away from those.
Mark Hoban: Talking to some lenders, I think there’s a bit more competition in the market. It was very competitive leading up to the financial crisis and home ownership fell actually in the run up to the financial crisis, but I think the mortgage market is showing signs of being more competitive. Competition is important and we want to do what we can to stimulate competition. We extended the mortgage interest rate relief scheme for those who found it difficult to pay their mortgages. It’s also important we make sure borrowers have access to good quality financial advice.
Martin: It’s interesting you say that because the mortgage broker market has been absolutely decimated by the financial crisis and with lenders offering primarily direct-only deals, so there are far fewer brokers out there and brokers are really struggling because they’re being killed with this.
Mark Hoban: Yeah, but I also think there are other sources of advice, as well, which are available and often to people who are suffering with financial stress from the likes of the Citizens Advice Bureau, and Consumer Credit Counselling Service.
Martin: I accept all that, but people in trouble is one thing. What we’ve got at the moment is a huge chunk of the market trapped into expensive mortgages that they don’t feel are too expensive at the moment because of low base rates, but certainly the margin between what they’re paying and base rates is huge and if we have any form of interest rate rise, then they’re going to be struggling. So I think one of the keys is, are you going to do anything to protect people? I mean, mortgage lenders have hugely increased their margins since the crunch. Are you going to be doing anything to protect people from them just keeping those high margins once interest rates bounce back?
Mark Hoban: I think that you could bear in mind that the funding cost for lenders is not base rate. The funding cost that lenders face is the money markets. You talk to a lot of lenders who are competing quite heavily to be mentioned on the best buy tables, so they can get retail money in, so there’s quite a careful equation here. Lenders have got to be able to attract funds into their business to be able to lend on. You talk about the demise of the mortgage broker, part of the problem there was that there was a reduction in the flow of money coming into the mortgage market and it meant that for lenders, they’d have capital to service their own direct business but they didn’t have enough capital to be able to route money through mortgage brokers. If we can get back to a situation where funding is stable, where there are people willing to re-enter the mortgage market again in terms of lenders, I think that would help provide more competition and help tackle that issue about the gap between the base rate and the mortgage interest rate.
Martin: I go back to my prime concern which is we have a time bomb, especially for people with 85% to 100% LTV, who are unable to remortgage at any competitive rate, so I just don’t see the light at the end of the tunnel and if interest rates do rise, they’re going to be locked in and I’m not hearing anything that you’re planning to do that will help them. What I don’t want to do is be sitting here in three years when it’s actually happened and say, what are you going to do to help these people? Surely we need to be looking at that market right at the time.
Mark Hoban: That’s why we’re committed to increasing competition in the banking sector. We need to get back to that more competitive market in financial services, in banking, in lending and that will encourage more to come forward and offer better rates and I think we’ve started to see some of that.
Martin: I’m getting a few questions from my users now just on the back of this. First of all, on mortgages, do you think mortgage arrangement fees are fair in any way? I mean, £699, £999, 2% of a mortgage deal. You’ve talked about competing for top of the best buy tables, those are on interest rates, yet of course, the arrangement fees, which when I started doing this were £150, £200, are now astronomical. Is there any regulation going to come in over how arrangement fees are organised?
Mark Hoban: They’re obviously wanting to make sure that the pricing of mortgages is transparent, not just focus on headline interest rates, but also to make sure they understand what the fees are and when I look at best buy tables, because I’ve got a mortgage coming up for renewal myself, you can see interest rates and fees displayed and there’s a trade off. You can pay at higher interest and get a lower fee, so I think it’s important that it’s transparent, so one of the things I’m keen to do, I’m keen to make sure that the FCA, the Financial Conduct Authority [which will take over from the FSA], is going to have much more transparency in financial markets to enable customers to shop around and to know exactly what that trade off is between arrangement fees and interest rates.
Martin: That of course is incredibly difficult because it makes it very difficult to compare, when you have one with a high arrangement fee, one with a low arrangement fee. I can do them, I’m sure you can do them, but lots of people can’t do the mortgage calculations themselves.
Mark Hoban: But that’s why you see on a lot of comparison websites, you know, they look at the costs, including…
Martin: But, of course, those comparison websites often don’t include direct only deals, which makes it very difficult and I think there is a real problem, when it comes to getting a mortgage. If you use an independent mortgage broker and then you go and look at the direct deals yourself because your independent mortgage broker often won’t include those direct deals because they’re not allowed to service them, you then have to go to the comparison site and it’s a very difficult system that we’ve got ourselves into because of this complexity.
Section 2: Will regulation changes hit consumers?
Martin: I’m going to move on to the Financial Conduct Authority. It’s hopefully there to help consumers and make sure there is transparency. The Prudential Regulation Authority will look at the economy as a whole. There is a worry that the PRA, which can overrule the Financial Conduct Authority, will do so in a way that’s anti competitive. Let’s take the LTV issue, it will stop mortgage lenders coming in and lending money at higher LTVs, even when it’s remortgage business, so there’s no additional increased debt, that’s something that’s been talked about. How are you going to marry making sure that the Prudential Regulation Authority doesn’t simply act big picture and kibosh consumer interest?
Mark Hoban: Well, the Prudential Regulation Authority is there for safety and soundness of, particularly, banks and insurance companies. You’ve got the Financial Policy Committee which will have a responsibility for macro-prudential regulation to look at the stability of the financial system and if you look back to the start of the financial crisis, what we didn’t have in place was someone looking at the system-wide risks of instability and having the tools to tackle them. In terms of tackling LTVs, no-one has the power at the moment to cap the loan to valuation on mortgages and if that was going to be a rule used by the Financial Policy Committee, it would have to consult on that and go through quite a rigorous process of consultation and discussion before we gave it the powers to do so. We wouldn’t want anyone to think that regulation of LTVs is around for a while, but clearly we want a much more stable model of financial services.
Martin: It’s important from my perspective and I think unfortunately, you talk about Financial Policy Committee and then Prudential Regulation Authority and then at the bottom, in that tree, the Financial Conduct Authority, which is the one that has the consumer remit and I do worry slightly in this new set up, consumers are at the bottom of the pile.
Mark Hoban: No, that’s not true. No-one should think that the Financial Conduct Authority is subservient. They are a…
Martin: The PRA can overrule them?
Mark Hoban: In very, very limited circumstances.
Martin: But it can.
Mark Hoban: Only when there’s a particular conflict between prudential business issues, and if it does overrule it, it has to be open and transparent about why it’s doing so. I think the vast majority…
Martin: But by definition that would count as subservient.
Mark Hoban: No, it’s not, because the situation in which there’s that conflict between the two is very limited. I think most consumers will find the Financial Conduct Authority will monitor the way in which firms relate to their customers and we’re going to give the Financial Conduct Authority the power to intervene on particular products. I think consumers will see the FCA as a body that they will turn to and one that will have a much bigger impact on their lives and I think the FCA will really look to the heart of the financial system.
Martin: I wait with my eyes open to see if that actually works. I’ve lots of questions about the timing of that, but that’s a discussion for another day, I think.
Section 3: Savings interest
Martin: Now, just to throw something back, you did say before that you are concerned, that you want to keep interest rates as low as possible for as long as possible, so a question from Chorley. How did you expect people who did the right thing by saving for their retirement to live off the interest of those savings when the Bank of England is only helping those who are in debt with the continuing low interest rates?
Mark Hoban: Yeah. Well, as I said earlier, low interest rates are important, they will help the recovery. I think a lot of my constituents are pensioners, they’re concerned about the effect of low interest rates on their savings and that’s why I think it’s important pensioners are able to shop around, see the rates they’re charged. That’s one of the reasons why we’re keen to respond to the super-complaint from Consumer Focus about lack of transparency on Isas. The FSA is saying that from the end of this year, banks should put interest rates on statements so that people can shop around much more.
Martin: Many people are also saying they’ve worked very hard, they’ve paid income tax on their earnings, they’ve then saved it and then they’re going to have to pay tax again, even at pitiful interest rates. Why is tax so high on savings?
Mark Hoban: Because if you think about the various sorts of things people have in retirement. Pensions: they’re taxed when they draw down their pensions, but they get very generous tax relief to enable them to build up their pensions and, of course, there’s quite significant tax advantages around Isas as well, so it’s not so cut and dry as paying lots of tax on their pensions.
Martin: But this is how people are feeling.
Mark Hoban: Yes, absolutely, but I think it’s important to recognise there are quite generous tax reliefs in the system to help those, to reward those through the stage of their retirement.
Martin: Now, it’s very interesting, something you said, because it’s an issue I’ve been campaigning on for years and we had 60,000 people write this on the Number 10 website about three years ago after a petition I launched about interest rates on savings statements. It is abhorrent that banks do not have to put the interest rates on savings statements. You said this is changing. I don’t believe that or I’ve not heard it. It’s a big campaign of ours. It is a disgrace I have to go onto my internet bank account, click a link, but then there’s 40 different accounts and I have to know which one my account is to know what interest I’m being paid. When they’re clever enough to work out how much interest I’ve actually accrued, when they say it’s difficult, I think they can be clever enough to tell us…
Mark Hoban: My understanding is that from the end of this year, the FSA are requiring banks to disclose interest rates on their savings.
Martin: It’s definitely on ISAs but not savings.
Mark Hoban: But my understanding is that it will be on statements [FSA guidance states from December providers "should" publish the rate on statements but this is only guidance, not a cast-iron rule].
Martin: It is required on ISAs, not on standard savings accounts. Can I have your commitment that you will push for that to happen on all savings products?
Mark Hoban: Yes, you can, because I just think it’s really important that people know what the interest rate is on their savings, so that way they can start to shop around and you know…
Martin: Well, it’s probably the reasons they don’t shop around because they haven’t got a clue.
Mark Hoban: Exactly and something we’re passionate about is making sure we use transparency to enable customers to shop around, to know how much they’re being charged and what sort of returns they’re getting.
Martin: Yeah. Well, we’ve been campaigning on it for years, so I’m delighted to take your firm commitment on that one way or the other.
Martin: Savings safety, is a great concern for everybody. We’re now up to a safe savings limit of £85,000 per person, per financial institution. But one of the great confusions that many people still face is what is a financial institution? For example, Halifax and the Bank of Scotland is one financial institution, whereas sister banks RBS and Natwest are two financial institutions. This vagary and complexity is everywhere. There is no list of financial institutions on the FSA’s website. The European Parliament is discussing changing the system, so that you will have one bank licence, per bank. Until recently, I believed the UK Government was going to vote against this and it’s now decided to abstain on this. Why isn’t it voting in favour? Why shouldn’t we solve this complexity issue and actually have each bank having its own licence for savings safety protection?
Mark Hoban: You’ll find in Europe for example, they wanted to allow a longer period between when a bank fails and when it deposits transfers. We’ve actually pushed for a shorter, seven day period and we’re going to stick to that. The debate about brands and banks has yet to be resolved. I understand the point you’re getting at and it’s going to be discussed.
Martin: But I hear the answer is not to vote in favour.
Mark Hoban: A number of banks do operate on a standalone basis per licence and that’s when the £85,000 safe savings applies per licence. But I think it’s important that there is information out there to help customers. I’m surprised the FCS doesn’t have a list on its website.
Martin: It doesn’t and the FSA only has a register. I have a friend who works as an investment banker in the city who called me up trying to work out what the list meant, which shows how complicated it is if a very literate, financial consumer couldn’t understand it. We [MoneySavingExpert.com] have a tool to help people.
Mark Hoban: The FSA needs to make it much clearer to consumers about where this £85,000 safe savings applies.
Martin: We have offered to work with the FSCS and have a joint tool with them, but we didn’t get very much back. On this point though, while you’ve talked about savings clarity, if the FSA is going to mandate banks to tell people what their interest rate is, should it also not mandate banks to tell people what accounts are linked? So, if you put money in the Halifax for example, it tells you that you are protected up to £85,000. They say your money is safe, but they don’t talk about protection and they should be made to, as in that example you’ll actually only be protected for up to £85,000 per person in the combined Halifax, Bank of Scotland and any other accounts that are linked to it. That should be something banks must tell you.
Mark Hoban: I think there is a rule on that at the moment. It’s really important that banks are clear about the extent to which customers are protected by the compensation scheme and the FSCS earlier this year launched an advertising campaign to raise awareness of this, it’s still got some way to go and it shouldn’t just be down to the FSCS. I think banks have a role to play in this too.
Martin: So, just to push on that, the key is, if for example I’m a Halifax customer, then I really don’t care about RBS protection because I don’t have any money there, but my bank needs to tell me what linked institutions are and that’s one of the great problems out there, that the bank doesn’t. I know you’re not going to commit at the moment I can see it in your eyes, but I would push you to have a look at how that is communicated from the bank sector. When I put money in the bank, I want to know what other banks are linked to it under its licence protection and I think that’s not a difficult thing for them to take into consideration.
Mark Hoban: I’m seeing the BBA later this week, so I’ll raise that.
Martin: That’s very kind of you, thank you.
Section 4: Bank charges
Martin: We’re going to move off the mortgage and savings type issues for the moment and stick with some of the big picture stuff. Bank charges. We’ve spoken about this in the past. There are still a lot of people who have been burnt by this system that effectively cross-subsidies from the poor to the rich and penalises people, and they have snowball charges of hundreds and thousands of pounds. Then there was the Supreme Court technical ruling that said bank charges didn’t need to be fair, rather than that they were fair. Is that all closed forever from your perspective, for people getting back money that they’ve already paid out?
Mark Hoban: What we’re fixing on is how to tackle this problem going forward in the light of the Supreme Court case judgement.
Martin: Under one law?
Mark Hoban: Yeah, but the Supreme Court is the highest court in the land, that was the view that they reached.
Martin: We have legal advice saying that under The Consumer Credit Act, there is a fairness duty. I don’t think we ever fully tried this out in court. It was just under the Unfair Terms in Consumer Contracts Regulations that this ruling went and I do think there is still a large amount of doubt over this. Having said that, the banks got there, had their day in court and they won on that particular ruling, so I accept the point that the Supreme Court ruled on one point of law, but I don’t think we’ve ever fully tested all the law on this.
Mark Hoban: No, but I think what we should do is actually look forward and say what can we do to make this work for the better, to try to put the pressure on banks to reduce their charges and I think we’ve seen quite a bit of progress being made since that judgement to help tackle this area. I think the average costs have gone down from about £34 to £14.
Martin: And the structures have changed, in general I will accept it has. Certainly, the one thing that the campaign to reclaim bank charges did was pressurise banks and help politicians pressurise banks into lowering bank charges across the board, so what would you say to someone like the Clydesdale and Yorkshire Bank, who still charge £35 per transaction, rather than many of the others, who now do it per day on lower amounts, do you think it needs to get its act together?
Mark Hoban: Well, I think that banks should look at their charging structures, I think that…
Martin: Because that hasn’t changed at all.
Mark Hoban: No, and I think that a lot of banks have made progress on this. I think what we’d like to see is more movement on a voluntary basis, having the banks tackle this problem, but we’ve made it clear that if that doesn’t work, then we will legislate.
Martin: And what’s the timescale on that legislation?
Mark Hoban: Well, we published a consultation document last year on a series of issues around consumer credit. We’ve been working with the banks to find a way in which we’ll take action on a voluntary basis, as happened previously. I think that there are some big challenges elsewhere around and obviously the Independent Commission on Banking is going to report in September, but I think that switching, that transparency costs are important disciplines to have. Banks show that they’re sharpening up their act to give consumers much more power and choice.
Section 5: Consumer Focus and debt advice
Martin: Now, Consumer Focus, is an organisation that I’m a great supporter of and I have to say I think it’s an absolute tragedy that it’s going. Some of its functions are being moved across to Citizens Advice [CAB] but we now have less than a year left of the Financial Inclusion Fund [Treasury funding to debt advice services] and there is real potential here, both for people to focus on individual issues and to take those issues on in the way that Consumer Focus did. Debt counselling lags in a recession, so we are in the peak time to look into this at the moment and funding and a lack of security in that sector is a nightmare. Where do you see this going forward?
Mark Hoban: We’ve been working with the Money Advice Service and looking for them to take on responsibility for debt advice.
Martin: So you’d take that away from CAB?
Mark Hoban: It would be funded through the levy on financial services businesses and so, in effect, what the Money Advice Service would do is take on the role that it has had, up until March next year in that co-ordination.
Martin: So the Financial Inclusion Fund is now being given by BIS, not the Treasury?
Mark Hoban: The previous Government Financial Inclusion funding came to an end in March this year, which gives funding until March 2012.
Martin: And then?
Mark Hoban: And then the Money Advice Service will take responsibility for the co-ordination of debt advice and it will be funded by the industry.
Martin: And will it be the same amount of money [as the FIF]?
Mark Hoban: What we would expect the Money Advice Service to do, is to work with CAB and the providers to think about how the service should be delivered, about availability, access to the service and whether there are better ways of providing the service. The Money Advice Service is very clear that the face to face advice element of CAB is really important, but it’s not the only way we should get debt advice to people.
Martin: With regards to Consumer Focus, is there any chance of a reprieve there? It is a mistake, you should not be doing closing it down, the money used to fund it is pittance compared to the amount of help it can give to consumers. Can I ask you to rethink it?
Mark Hoban: That’s a matter for my Government colleagues in BIS to think about.
Martin: Can I ask you to put pressure on them? It’s a very small amount of money.
Mark Hoban: I know that you’ve been to see Ed Davey [MP] and I’m sure you raised that question with him. It’s down to departments to decide how to use allocated funds.
Section 6: Basic bank accounts
Martin: Onto basic bank accounts. I know you’re passionate about financial inclusion, as am I, but many people don’t have bank accounts and that’s a worry. The biggest problem these people have is that they apply for a bank account and instead of being given a basic bank account, even if they say they’ve got a bad credit score, they are given normal bank account forms, which they then get rejected from.
Mark Hoban: Yes, some banks are better than others. The financial inclusion taskforce did do a lot of work around industry shopping to gauge how good banks were at meeting this need and I think there’s some real challenges around financial inclusion and it was interesting that the last piece of work the taskforce did found that in view of the concentration of people without a bank account, it tended to be those in poorer sectors of society, people who were disabled, single parent families, older people, but that’s one of the reasons why Iain Duncan Smith, the secretary of the DWP, is taking the lead on financial inclusion.
Martin: My immediate solution to it is, if you apply for a bank account and you’ve got all your ID and you’re rejected for the main bank account, why can you then not be offered a basic bank account? There’s no credit score issue, that’s the whole point of basic bank accounts, you can’t go into an overdraft. Nobody who has ID should be rejected from a bank account in this country.
Mark Hoban: That’s something that we would have to look at in different banks’ procedures, but some banks are very good at this anyway.
Martin: But lots aren’t. I can give you 1,000 examples of people that get rejected in this way.
Mark Hoban: Sometimes it’s about actually making sure the messages that CEOs give out are actually followed down the line.
Martin: Which they’re not.
Mark Hoban: That’s part of the challenge, and that’s why banks and other financial institutions really need to tackle financial inclusion.
Martin: It’s an easy commitment that they should just offer a bank account to everyone. The solutions are there, the problem is that we need to push for this to happen.
Section 7: Bank transfers
Martin: Ok, two quick ones, first of all from Red Sky, can the Government produce some legislation which makes banks transfer all money transactions via the faster payments system, the same day without any limit being imposed on the transfer amount?
Mark Hoban: The faster payments system is coming in, in January 2012, so let’s see how that works first.
Martin: If they don’t deliver in January, what are you going to do?
Mark Hoban: Well, I think it’s a big issue for the Payments Council. The whole cheque fiasco sent a very clear signal to the Payments Council and the banks that they need to sort out the payments system in this country. In this day and age, it should be easy to get payments made quicker and I think banks need to demonstrate, if they want to rebuild that trust from consumers, that they make these payments quickly and efficiently and they market this service to people.
Section 8: Pensions
Martin: Mike04021949 says: "I was stupid enough to be born in 1949, when I retire in 2014, I shall do so too early to qualify for the Government’s super duper proposed £140 flat rate pension, any plans to revise this for me, Minister?"
Mark Hoban: The DWP [Department for Work and Pensions] is touching on this issue. I think there’s a real challenge about putting this scheme in place with people who have already retired and it really focuses on those who have yet to retire, but there’s a consultation process on that at the moment.
Section 9: Foreign exchange regulation
Martin: Why aren’t foreign exchange, Bureau de Change companies regulated?
Mark Hoban: Because they are perceived, or were perceived until the collapse of the Crown Currency Exchange, as relatively low risk businesses and many people do use them and if you go and buy your foreign currency using cash or a debit card, they’re still viewed as low risk. Crown Currency Exchange had a particular business model, which led to greater risks and we’re trying to work through some of the lessons we’ve learnt from that.
Martin: But you’ve just said the basic issue with online ordering of Bureau de Change, which is obviously going to get bigger and bigger, is that there is money in transit.
Mark Hoban: But at the same time, regulation has to be proportioned. It’s very easy to say let’s regulate it, but let’s just think very carefully about what the cost…
Martin: Mandated ring-fenced bank accounts would be very helpful. I think that would be one of the solutions; that your clients’ money goes into a client account and that isn’t subject to the overall assets.
Section 10: Online ID requirements
Martin: Last question – you go to set up an online bank account and it asks you for printed statements from your other bank accounts, but all your other bank accounts and credit cards give you online statements, which aren’t accepted. What are you supposed to do in this virtual age, when you’re trying to become a virtual consumer in a paperless environmentally friendly world, but everything you need to apply with has to be in a hard format?
Mark Hoban: The detailed rules around money laundering and things like that are industry driven and it’s something that the industry needs to look at quite carefully, to make sure they get the right checks and balances in place and that it reflects on the business they do.
Martin: It’s bonkers.
Mark Hoban: I mean, you know, we have deliberately, given discretion over this and how these things work and they think quite carefully, when you’re moving to an online age, how to best do this.
Martin: Thank you very much for the interview.