With mortgage rates so low, 2017 this should be a great time if you want to remortgage or move house. But there may be four million people in Britain who would be refused a new mortgage deal and who are trapped paying a higher rate, or not allowed to port their “portable” mortgage.
Update Sept 2015 Barclays introduced a new policy on “like-for-like” transfers in June which should apply if there is no increase in the borrowing or the term, and where all parties to the mortgage remain unchanged.
Update May 2016 Halifax raises limit for the end of a mortgage to 80 years, but borrowing beyond retirement age requires proof of income in retirement.
In April 2014, all mortgage lenders had to start using new and much stricter “affordability tests”. Banks often say these new tests are the reason why people are being refused a mortgage or a re-mortgage. In 2015 nearly half the people applying for mortgages were being rejected.
You may be refused a mortgage if it won’t be repaid before one of the borrowers retires. In this case that went to the Financial Ombudsman, HSBC refused a mortgage to a couple in their 40s, even though their pensions provisions meant it was clearly going to remain affordable for them.
Many people have thought they had a “portable” mortgage that they could take with them to a new property. But in the small print it said that they had to meet whatever the lending criteria are at the time of the new mortgage and they are being refused. As Ray Boulger of mortgage brokers John Charcol says, “It’s a crazy situation. People who have a perfectly good track record on their current mortgage and don’t want to borrow more money are finding they are being refused because of these new rules and the way they are being interpreted.”
Other people are applying for a new fixed rate mortgage and being refused on grounds of affordability, even though the new mortgage would be cheaper than their lender’s Standard Variable Rate which they are already paying.
This wasn’t supposed to happen
When the new affordability rules were brought in last year, there were also “transitional provisions” which allowed mortgage lenders to have the flexibility to offer exceptions to the new stricter lending criteria for existing borrowers. So why isn’t this happening?
One suggestion is that banks and building societies are sticking to the letter of the new affordability rules as they are worried about future problems with their regulator if they use this flexibility and a borrower then gets into financial difficulties. But this seems pretty unlikely, as the lender could easily document why the flexibility was appropriate and how the new mortgage would be no worse than the previous one.
It seems more likely that the lenders are making money from strictly applying the new rules:
- some of the people wanting to port a mortgage have been on very low life-time tracker mortgages that are no longer available;
- other people are trapped paying their lender’s high Standard Variable Rate as new lenders won’t take them on.
Can’t the regulator stop this?
The banks’ regulator, the Financial Conduct Authority (FCA), has made it clear that it wants lenders to take sensible decisions, looking at the interests of their customers and at the details of your case. A lender may have general guidelines that it won’t lend to anyone over 70, say, but it has to consider if there are reasons why the mortgage is suitable for you.
If you feel you have been badly affected by your mortgage lender’s refusal to port or re-mortgage, you need to complain not to the FCA but to the Financial Ombudsman. How to do this is explained here – basically you have to make a formal written complaint to the mortgage lender first and then take your case to the Financial Ombudsman if you don’t get a satisfactory answer.
This can work. For the couple in their 40s mentioned above, the Financial Ombudsman decided that “The bank relied on untested assumptions, stereotypes or generalisations in respect of age” and told HSBC to reconsider the mortgage application.
In February 2017, the latest edition of the Financial Ombudsman’s newsletter looked at several cases where people were refused a mortgage because of their age