Government loses bid to block financial services bill amendment in House of Lords

It would also ensure in some cases access to fixed-rate deals.

The move follows calls for action to assist so-called mortgage prisoners trapped with their current lenders, which are often inactive or not authorised to offer new products, leaving many paying higher rates than they would otherwise need to.

They are often rejected when they apply for cheaper mortgages because they do not meet toughened borrowing criteria brought in after the 2008 financial crash, even if they are keeping up with repayments.

Proposing the amendment to the Bill, Liberal Democrat peer Lord Sharkey said: “This has all gone on much, much too long and it has caused and continues to cause far too much misery and desperation.”

Labour peer Lord Stevenson of Balmacara said: “It is clear that a significant number of people, through no fault of their own, cannot exercise the choices about their mortgages that the rest of us can.

“Someone needs to take responsibility for providing a fair outcome for those that are in a position to take advantage of it.”

Responding, Cabinet Office minister Lord True said: “The government does not underestimate the stress of being unable to switch your mortgage can cause.”

It was seeking ongoing solutions to the problem, he told peers.

But Lord True added: “We must be fair to all borrowers in any steps that we take.”

The government defeat came during the report stage of the Bill in the upper chamber.

The legislation, which has already cleared the Commons, updates financial services regulation after the UK’s departure from the EU.

It amends existing laws in 17 areas, including on banking rules and benchmarks, and includes changes to help people struggling with problem debt and an extension of the maximum criminal sentence for market abuse from seven years’ imprisonment to 10.

Ministers have said the legislation is an “important first step in taking back control” of financial services regulation and will ensure the UK remains a “world-class” financial centre post-Brexit.

Earlier, the government introduced an amendment aimed at ensuring buy now, pay later services are properly regulated while remaining viable for firms to offer.

Lord True said: “The government recognises the concerns that exist with these products as the market continues to grow in the United Kingdom.

“We are therefore acting decisively to address the risk of detriment to consumers.

“The government intends to bring buy now, pay later products within the scope of the regulatory framework, which includes the application of the Consumer Credit Act 1974.

“However, it is important to note that these products are interest free and thus are inherently lower risk than most other forms of borrowing.

“Used properly, they can provide a lower cost alternative to mainstream or high cost credit.

“The government’s view is they can, therefore, be a useful part of the toolkit for managing personal finances and tackling financial exclusion.”

He added: “It is therefore essential that when buy now, pay later products are brought into regulation it is done in a way that provides for robust consumer protection while also ensuring that it is viable for firms to continue to offer these products.”