New mortgage rules are allowing banks to discriminate against middle-aged borrowers
It’s unlike banks to use new legislation to their advantage isn’t it? After all, banks only have our best interest at heart, right? Perhaps not- it seems new mortgage rules that came into force in April could be being blamed for keeping customers paying through the nose for mortgages, when they should be able to get a better deal.
The new regulations (the MMR) were designed to pre-empt a future housing market crisis, by enforcing stricter rules on mortgage lending to make sure people could really afford it. Interest-only has gone out of the window, and lenders are required to show they have conducted strict affordability checks before handing over any cash.
However, the new rules were supposed to protect those who already had a mortgage, as the new regime means that some people who already have a mortgage, may not qualify under the new rules for a new mortgage, leaving them in a mortgage no man’s land. The FCA reiterated in June that lenders are not to use the new rules as a stick-without-a-carrot to keep people trapped in mortgages, and that the special provisions that apply where people are not borrowing more cannot be ignored by lenders, especially where all the borrower is doing is trying to obtain a better/fixed rate.
But, of course, some lenders seem to be doing just that, and refusing to transfer existing mortgagees to a lower rate over ‘affordability’ concerns. The latest victims are those whose mortgage term ends after retirement, as the bank claims they cannot lend where income (such as retirement income) is uncertain. While this sounds reasonable in theory, when the borrowers are merely seeking to reduce their monthly payments, the bank arguments don’t stack up.
Take the case of 49 year old Mayur Vadhia, who has a 20 year outstanding mortgage with the Halifax, as reported in the Telegraph. Mr Vadhia currently has a 3.99% loan for £109,000 that will finish when he is 69, but he was refused by the UK’s biggest lender when applying to change the mortgage to a 2.89% fixed rate, for the same amount, over the same term. He was told that the reason for the refusal was that he was unable to offer proof of an exact income after state retirement age, when the loan would still be in force.
"It doesn't make sense," Mr Vadhia grumbled to the Telegraph. "As I'm already paying a higher rate that will run into retirement, how can Halifax say that I can't afford to lower my repayments?"
Mr Vadhia was then advised to re-apply for the 2.89pc rate, but this time to also reduce his remaining mortgage term from 20 years to 15, so that he would be done and dusted by the time he was 65. The adviser agreed that he had more than enough disposable income to cover the additional £59 a month this would add to his repayments.
But guess what? His application was rejected again with no explanation.
"I don't understand what is going on," he said. "On the one hand Halifax is saying they will not allow me to move to a cheaper deal and keep my mortgage on the same term of 20 years as I do not have enough evidence of my pension income. On the other, they will not allow me to reduce the term by five years so that I pay it off before retirement.
"I put forward a sound financial proposal, have never missed a repayment and have an excellent credit score. I have more than enough disposable income to support the higher repayments over 15 years but I was still turned down. I feel trapped and am very concerned about potential interest rate rises."
Halifax blamed the new affordability rules for their decision: “When we took Mr Vadhia's application through the assessment it was not found to be affordable."
However, Halifax have now, since the error of their ways was pointed out to them in newsprint, offered Mr Vadhia a 2.89% fixed deal for two years, with his current 20-year term and apologised for "raising Mr Vadhia's expectation." They also gave him £125 for the "disappointment and inconvenience".
Consumer 1 Bank 0. But not for lack of trying