House of Commons

I thank my hon. Friend the Member for Aberconwy (Guto Bebb) for securing this debate. The mis-selling of interest rates has affected people in many of our constituencies, including mine. One of my constituents, the owner of a geo-environmental company, wanted to take out a long-term fixed rate product. He wanted a portion of that loan to be paid off as and when he had the capital to spare, with no penalties. He also wanted a period of low interest or interest-only repayments to assist with cash flow as the company embarked on a further phase of expansion. To me, that appears pretty reasonable.

NatWest-a bank that has newly entered this debate-offered my constituent what he thought he was looking for at the time and a product that fulfilled his core requirements. He was given the option of fixing the interest rate by entering into an interest rate swap agreement with the investment banking arm of RBS-that wonderful bank that we have again heard about today. He was given a complicated document but believed that it represented a mechanism for fixing the interest rates. He was given a loan of 1% above base rate but his agreement had no expiry date and, in conjunction with the interest rate swap agreement, provided an effective fixed rate of 6.19% for 10 years.

In January 2009, when interest rates were falling and looked as if they would remain low, my constituent was referred to RBS global restructuring group. He inquired whether he could break the fixed-rate interest agreement because it was costing his company dearly. It became apparent, however, that he could do so only if his company incurred a large financial penalty, which at the time totalled £175,000-equivalent to 19.4% of the original loan. A break clause was written into his agreement, but it could be acted on only by NatWest, and the punitive break fee meant it was totally impossible for my constituent to refinance with another bank.

In September 2010 as part of a review of my constituent’s loan, RBS increased the lending margin by 1% to 2%. That increased the interest rate to 7.19%, which made a mockery of the fixed rate that had been promised back in 2007. Interest rates were at an historic low of 0.5%, but my constituent was effectively denied the opportunity of taking advantage because he was locked into his IRSA.