We are letting down existing borrowers

Bob Hunt

September 6, 2016

sad young adult man

Bob Hunt is chief executive of Paradigm Mortgage Services

Given that even a hint of a change to Bank Base Rate (BBR) over the past seven and a half years has been rare, you can fully understand why the market has taken such a keen interest in MPC pronouncements over the past couple of months. This month’s cut to Bank Base Rate was widely anticipated but still seemed rather momentous given the lack of movement over that period.

The suggestion from many commentators is that the cut will herald something of a ‘new age’ for the remortgage market, which (we are told) has been waiting on a BBR move – in either direction – since January 2009. Whether this becomes reality is another matter, and will of course depend much on how lenders react.

That said, there are a group of borrowers – whose true size we are yet to get a full handle on – who will find themselves stuck in the same position regardless of whether rates fall or rise. These ‘mortgage prisoners’ appear locked in limbo, some for unfathomable reasons, and it was therefore no surprise to see the Association of Mortgage Intermediaries (AMI) recently hitting out at both the regulator and lenders for what they see as inertia when it comes to helping these borrowers move away from their current (often SVR) rates to those which are far more competitive in today’s mortgage market.

AMI puts the ‘mortgage prisoner’ number at somewhere near one million and says that in certain sectors there are great swathes of borrowers unable to do anything but stay put. These include (perhaps unsurprisingly) interest-only borrowers, those who want to borrow into retirement or are currently in retirement, the self-employed and contract workers, foreign currency workers (whose product access has been hit considerably by the changes brought about by the MCD), and expatriates.

While AMI believes these borrowers are the worst affected in this post-MMR environment which brought in far tighter affordability measures, there are of course what we might call, ‘standard mortgage holders’ who have also been turned down for a remortgage despite the fact the transitional arrangements brought in by the MMR were designed to allow lenders to smooth their path. Of course, this is only for those not wishing to add to their borrowing, but even now it seems incredibly odd that a borrower who is currently affording their higher monthly mortgage payment, is still being turned down by a lender for a product which would actually see them with a less costly mortgage.

Now, of course, to give the FCA a fair hearing it has been very vocal in urging lenders to use the transitional powers as set out and to ensure borrowers are not left on rates which clearly disadvantage them, when (technically at least) they should be able to remortgage to a more competitive rate. However, turning theory into practice is a rather different situation, and you can (sort of) understand why lenders are cautious – perhaps far too cautious – when it comes to determining affordability under the MMR rules, rather than those in place beforehand. After all, the regulator’s train of thought is on tightening affordability/underwriting rather than loosening it.

That said, something has to give and there has to be a considered appeal to lenders to treat customers fairly in these circumstances. The FCA appears to be suggesting that because it has only looked at those customers who had mortgages approved, it’s not in a position to comment on those who were turned away. This clearly needs to be changed, because as any intermediary will tell them, the numbers of rejected borrowers are substantial and, while they are living through a period of ultra-low mortgage pricing – which has just got lower – they are not able to benefit from it.

One can understand the situation where the existing borrower wants to borrow more – of course the necessary affordability checks need to be maintained – but a simple product transfer or remortgage to a new lender should not be out of the question for those who simply want to move to a different product/rate. AMI appears to be calling for this situation to fall within the regulator’s review of responsible lending, and it’s hard to disagree. At the moment we as an industry are letting down existing borrowers who could, and should, be allowed to move. It’s time we rectified this.

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