Personal Finance

What to do if your bank makes you a ‘mortgage prisoner’

Questions were raised last week over whether banks and building societies are abusing new mortgage regulations. The Financial Conduct Authority announced it has launched an investigation into “lenders’ unfair rejection of mortgage applications from certain borrowers,” says Nicole Blackmore in the Daily Telegraph.

There have been repeated cases of people who are comfortably paying their mortgage being rejected by their lender when they try to move onto a cheaper deal. The reasons for the rejection are spurious and have led some to believe lenders are rejecting people purely so they can keep them on more expensive, and therefore more profitable, mortgage deals.

Can’t afford lower repayments?

It’s a practice of which I have first hand experience. I tried to remortgage with my existing lender last year. I wanted to pay off a large part of my mortgage, and move to a much lower interest rate. As a result my repayments would have fallen by £250 a month. But, my lender rejected my application stating that I couldn’t afford the new lower repayments. It was happy for me to continue paying hundreds of pounds more a month but not switching to a cheaper, far more affordable mortgage.

I’m not the only one to have experienced this. The Telegraph reports the case of Akbar de Medici and his wife Anna Bridgens. They wanted to remortgage with their lender Halifax. They earn more than £120,000 between them, have never missed a mortgage payment and have excellent credit ratings, as well as significant savings and other assets. They applied to move onto one of Halifax’s best fixed-rate deals that would have cut their repayments by £300 a month. “Halifax have refused their application, saying the couple ‘can’t afford’ the cheaper deal”.

New rules

The problem is that lenders seem to be using new regulations to boost their profits. Back in April 2014 the Mortgage Market Review (MMR) came into force. This was designed to make banks and building societies more careful about how much they lend and to whom.

One element of the new rules is that mortgage applicants must now pass stringent affordability checks to prove that they will be able to keep up with their potential mortgage repayments. However, it seems some lenders are being rather overzealous in their interpretation of the affordability rules and using them to keep people on more expensive mortgages.

“Mortgage brokers say many banks, while acting within the rules, have ignored additional regulatory guidance to use discretion in certain circumstances,” says Dan Hyde in the Telegraph. Under ‘transitional arrangements’ originally demanded by lenders themselves, anyone with a mortgage already who is not looking to increase their borrowing does not have to face the new affordability test.

What to do if you were refused

In the end I remortgaged with another lender. By refusing to let me move onto a cheaper deal my old bank lost my custom completely. If you find yourself in a similar situation, I strongly recommend using a mortgage broker to examine the wider market. I did, and he was able to find me the best possible deal for my individual circumstances.

A consequence of MMR “has meant it was harder for some people to get a mortgage or reduce the amount they could borrow,” the FCA told the Financial Times. “There was anecdotal evidence, it said, that some consumers were unable to access suitable deals and it will look at how widespread the problem is”.

Hopefully, the FCA’s investigation will lead to a degree of common sense returning to the mortgage market, rather than the current ‘computer says no’ mentality that is frustrating many borrowers and leaving them paying out far more than they should have to.

Personally, I’ll be waiting to see what comes out of this investigation. If the FCA do find that lender’s have been overzealously interpreting the rules, I’ll make a complaint about my own experience.

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