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'I'm taking on the EU mortgage credit directive' blog discussion

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.




Please click 'post reply' to discuss below.

Comments

  • Phil_the_fish
    Phil_the_fish Posts: 1 Newbie
    edited 20 May 2015 at 5:43PM
    Martyn, the problem is already here even for existing lenders with clause 11.6.4 of the Financial Conduct Authority's Mortgage Conduct of Business sourcebook. Clause 11.6.2 requires lenders to undertake affordability checks, 11.6.3 appears to offer a way through this for existing customers but 11.6.4 slams the door shut as it lists changes including switching from repayment to interest only and vice versa or extending the term into retirement "...may be relied upon as tending to show contravention of MCOB 11.6.2" and the circle of ludicrous thinking is complete. Martin Wheatley (CEO of FCA) said he wanted to, "hardwire common sense into mortgage lending"; how is he achieving this(?), by making the lenders so scared they will not lend for fear of breaching the new rules.


    In our case we have banked with the same lender for over 20 years and had a mortgage with them for over 10 years. This was interest only for an initial balance of £150k and has 8 years to run. Over the past 3 years we've paid off £20k through monthly overpayments of £500pm and wanted to repay a lump sum of £30k and fix the rate for the remaining term on a repayment basis for the £100k balance. After 2 hours of largely nonsensical questions about gym memberships and dining out, why we preferred fixed rate to trackers or SVR we were told that we couldn't have an 8 year term but we could have a 10 year fix if we could confirm my income for the last two years as I would be over state retirement age. After trying to explain that no one knows what is going to happen in 8 years time (or next week for that matter) but that my pension pot could easily cover the outstanding balance at that time if necessary we gave up and withdrew the application.
    We downloaded the MCOB rules and I do have more sympathy (or at least empathy) with the lenders and so we wrote to the FCA and asked them some simple questions; 1) Was it less risky to owe £150k or £100k?; 2) Was it less risky to have an interest-only or a repayment mortgage? 3) Was it less risky to have a fixed rate or a variable rate? 4)Was it less risky to keep paying into a pension or not save for the future? Their reply would not address these questions and instead offered nothing but waffle in the three paragraphs below (sorry this is so long, first posting and very irritated).

    "The Mortgage Market Review rules came into force on 26 April 2014. These rules aim to hardwire common sense into mortgage lending, preventing a return to past poor lending practices, while ensuring the continued access to mortgages for the great majority of customers who can afford it. These rules are the result of extensive consultation with regulated firms and consumer groups.

    A lender may consider affordability to be their biggest risk. An affordability check is at the heart of the new rules, and we have been very clear that if the prospective borrower - whether 25 years old or 65 years old - shows that they can afford the mortgage under the terms of the loan, there is nothing in our rules that stops that loan being offered.

    While our new rules require lenders to obtain evidence of income, the rules are not prescriptive about this. For example, we do not list which questions a lender must ask about an applicants expenditure or how far in the future they must go regarding expenses. Nor do we specify how income should be assessed. Ultimately each lender has to set their own lending criteria and make a commercial decision about whether or not they can offer a mortgage taking in to account all the risks associated with repaying back the mortgage."

    There is a lot in the rules that stops loans being offered and they are prescriptive, namely clauses 11.6.2 to 11.6.4. I have written to my MP with a copy to George Osborne and am writing direct to Martin Wheatley, perhaps if everyone bombards them with the same questions we might get some results. Does anyone know which Consumer organisations were consulted?


    RANT OVER!
  • Hi,

    I have a recent experience as follows:
    - my wife and I have a lifetime tracker mortgage with HSBC
    - we are looking to move house and port the mortgage
    - we want to reduce our mortgage by about 20-25%
    - HSBC are putting us through affordability checking
    - I am currently unemployed (hopefully temporarily)
    - HSBC will only lend us around a 2/5 of what they currently lend us, based on my wife's income only

    Although I can appreciate that we present more of a risk to the bank that we would have had I still been employed, it makes no sense, given:
    - we would be reducing (yes, reducing) our mortgage debt therefore making it easier (yes, easier) to pay down the loan
    - we would represent less (yes, less) of a risk to the bank than we currently do

    There seems to be a large dose of "computer says no", rather than looking at each case sensibly and with common sense.

    What is also concerning is that the bank, when I have spoken to them on a number of occasions, simply implies that "their hands are tied by the MMR carried out in 2014". This is patently incorrect, since, as this post has already said, the banks are only obliged to put people through affordability checks if they are increasing the amount of debt - see the FCA handbook - the bank is making a choice to apply these tests (unfairly IMO), it is not being forced to do so!

    I have complained, which the bank is reluctant to accept. I hope to get a response where they can see sense and that this is a obvious case of win-win (for me and for the bank)! Somehow I doubt it. I intend to take it to the Ombudsman eventually but I suspect they will be powerless.

    Martin - it would be great to have you look at my particular case, to lobby the bank to make them see sense and to shame them into looking at it with an open pair of eyes… :-)
  • Reb16
    Reb16 Posts: 2 Newbie
    Hi Martin,


    I'm so glad you're looking into this nonsense!


    I've had a repayment mortgage with the Halifax for a few years - house now valued in excess of £400k, approx. £79k outstanding and approx. 8 years term remaining.


    Just over a year ago I made a lump sum overpayment and requested, as per usual, that the term be reduced rather than the monthly payment. I was told this was not possible until I completed a mortgage affordability questionnaire which proceeded to take 2 hours over the phone. It was like the Spanish inquisition and being a single woman of a certain age I felt some of the personal questions relating to family life quite invasive and insensitive.


    At the end of this barrage of questions I was told that because I wanted to reduce the length of the term of my mortgage it was effectively a new mortgage and according to the results I could not afford it!


    Absurdly I was also informed that I could still carry on making overpayments if I so wished (although the length of the term would remain the same).


    Had I known the amount of grief I was going to be subjected to I would never have requested for the term to be shortened.


    To be fair the man questioning me was quite embarrassed by it all and said he could see that obviously I could afford it or I wouldn't have made the overpayment in the first place but that his hands were tied by the results.
  • neonorigami
    neonorigami Posts: 2
    Combo Breaker First Anniversary
    Newbie
    edited 1 October 2016 at 11:34AM
    I'm glad you're doing something to challenge this, Martin, because I too have been recently affected by the Mortgage Credit Directive in quite a dramatic way: last week my broker found literally no lenders who would consider me, purely because my income is in euros at source (I'm a translator so deal with companies in other EU countries). In all other respects I'm a good candidate for a mortgage and they would have granted me one had I been paid in pounds.

    So I am in a position of being a UK citizen born here, having worked and paid tax in the UK all my adult life but cannot get a mortgage to buy a home here. I would only be able to get one in France.

    I wonder what to do now apart from writing to my MP. I will be interested to see how any challenge to this progresses.
  • This article (Martins blog) was published on 30 April 2015, 17 months ago!
  • Sadly it seems the UK's Graduates with average incomes seeking average mortgages will never meet the eligibility criteria given the compounding interest upon their Student Loans liabilities?

    With the additional fees and charges incurred from the new (latest) owners of the much traded Student Loans Company Ltd's book debts, how could any mortgage applicant be 'eligible' with a 30 year ticking £300,000.00 timebomb?

    Is it really that eligibility requirements leave most every average graduate a lifetime renter aka tenant?

    It seems a lot of University grade individuals fell for the sales pitch and financial advice to take the loans as against the lesser manual types now owning homes and businesses exceeding £300,000.00?
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