Is bank trying to scam me?

mikeyurgent

Hi there I wondered if anyone could help me with a bit of advice regarding our mortgage

Presently we have a 'portable' mortgage with a great are of 1.6%. There is about 100k outstanding

He have had offer accepted on another property which requires an additional 44k borrowing, which at our agreement in principle would be at around 4.6%

So we had a chat about borrowing with bank. Initially we received agreement in principle to borrow full amount 144k.

This was followed by a meeting with an advisor who was not at all concerned at all due to our incomes.

We presently have combined income of 56k per year.
Outgoings are 1800 per month presently (including petrol food etc)

That leaves around 1800 left for.....er ....saving and potential increase in mortgage.

Wife and I are both nurses in stable jobs 7 years each in same post.

To my dismay received call today from equally gob smacked mortgage advisor stating underwriters were only willing to lend 120k....a full 24k below agreement in principle.

She added that only potential way around was to extend term (we have 17 years left) but would lose our 'portable' rate.

But the reality is that I will end up paying about the same or perhaps even more, over 25 years, should we lose the rate and have to arrange a mortgage.

How can the bank say we can't afford payment over 17 years, but give us a mortgage which costs MORE over a longer period. I just don't get it, seems absurd to me.

Unless the bank don't want me to 'port' the mortgage elshwere at such an attractive rate.

Are they allowed to do this? Surely if they say we can't afford payments on one rate theyvcan't agree to another that will cost more?
I still can't understand how they can reduce agreement in principle amount so much, and ultimately we have £1800 per month spare which could contribute to mortgage.........

We do have 2 dependants, but have factored in costs for childcare and food, clothing etc into outgoings

I'm bemused by decision....l

Anyone got any advise... Explanations..... Words or wisdom
?

Thanks in advance

Thrugelmir

mikeyurgent wrote: »

Unless the bank don't want me to 'port' the mortgage elshwere at such an attractive rate.

Porting the interest rate is at the discretion of the bank. They'll be losing money at the rate you are currently paying. So there's no incentive for them to offer you a new mortgage. No scam, just commercial reality.

bowlhead99

You haven't mentioned how much the new place is worth ie what loan to value it is. Given a lot of providers are offering 4% fixed (or less if tracker) on an 80% or 85% LTV, the fact they want over 4.5% from you might imply you are looking for a higher LTV.

Or if you're not, it just shows they need to make enough money out of your overall mortgage (the cheap portable bit plus the new expensive bit) to compensate them for the risk they are taking by having you owing them 144k vs 100k.

A portable mortgage simply means you can take the existing debt to another property providing the property is high enough quality AND you pass whatever their current criteria is, as individuals, to borrow 144k from them. And it sounds like they are willing to increase your borrowings by 20% without issue - they are not completely unwilling to help you extend the borrowing and retain your deal.

But if you are looking to secure the loan on a different property, presumably not at an improved LTV, and you are looking to increase the debt by over 40%, they have every right to go back to the drawing board and consider if they want to take the risk.

The fact that their 'mortgage advisor' was 'gobsmacked' is either because the advisor is genuinely clueless about how underwriting works or the lender's current appetite for different types of mortgages at different rates at the moment - or the simple truth that 'advisor' means 'salesman' (like a 'customer advisor' in a clothes shop) and their job is to solicit applications for new borrowings, accepting that a proportion will not go through, and is a little embarrassed that this one didn't go through. It doesn't mean you have been wronged.

How can the bank say we can't afford payment over 17 years, but give us a mortgage which costs MORE over a longer period. I just don't get it, seems absurd to me.

Is the issue that they said it was more per month AND over a longer period? Or are you just saying that the extra rate combined with extra term will probably cost you more in total even though extending means less per month than if you had not extended?

Whatever. Basically, you want to borrow 40+% more money. Their suggestion is you take 40%+ longer to pay it back. That way they would be comfortable that you could afford it, regardless of rate. That seems a fair assessment.

You are suggesting you will simply find 40% extra per month to pay it back. This 1.6% rate deal you are currently on - is it a lifetime fix? Is the incremental amount you want to borrow also going to be on a lifetime fix? If the answer to one or both of those questions is 'no', then they have to consider affordability not just today but over the rest of the 17 or 25 years when rates may move.

For example, if I'm on a 1.6% fixed lifetime rate, I can easily afford to borrow 140k over 17 years, it's a little under 800 a month. Interest only, it would be under 200 a month. Cheap as chips, well affordable no matter what happens to partner's income or whatever emergency besets the kids.

If however the 1.6% is a tracker that moves with base rates or follows SVR, or is only guaranteed to be low for another year or two, can I still afford it? If the interest rate went up to 12% as experienced in the 80s, a 144k interest only mortgage goes from <200pm to 1440pm. A 17 year repayment mortgage goes from ~800pm to nearly 1700pm.

So what the lender is doing is saying, as you would in their shoes : I have a customer who currently pays me less than it costs me to get the long-term finance from Funding For Lending scheme or off my savings customers. He's giving me zero in real terms for the risk I'm taking. There is zero profit in it and there's a chance he will default. If rates went up, he would have a huge squeeze on his income compared to what he's been used to paying on the mortgage. And now he wants 40% more money. OK, I will let him borrow a bit more money and keep basically making nothing on the first 100k, certainly not enough to compensate for the risk of default; but I'm a fair guy and I've made my bed and will lie in it, I'll stick to our deal and in fact let him take 20% on top at commercial rates to help him move house and thank him for the business.

But I'm sure as hell not going to lend him over 40% extra and keep the sweet deal when I don't think he can pay back that much in the same timescale, when long-term average rates are considered. As far as I'm concerned, if someone else will give him a better overall deal he is welcome to go elsewhere and take it. The risk/reward for me, with over two thirds of the borrowing being at crazy low rates, just isn't there, and although I have agreed to let him keep the current deal (paying off 100k over 17 years) if he passes my tests, I do not have to give him a different deal.

If he wants 144k over 25 years he can apply for it just like everyone else, and pay the same rates as everyone else. And I am not going to give him 144k over 17 years because I don't have to let him borrow >40% more over the existing term if I don't want to. He and wife might lose their jobs in the NHS cut-backs I've heard about, or one or both of them might need to give up work to bring up an existing or new child. Their affordability is then shot, especially if the interest rate varies.

You may think you are being scammed but you're not. They are making sensible lending decisions. The shareholders or building society members or financial regulators will be all over them if they do not. Thrugelmir has put it much more succinctly than I, but hope this added colour has helped you see it.

Wh05apk

I think the issue here is affordability, when you say your outgoings are £1800 per month, I assume that does not cover the mortgage? if so that sounds a lot, do you have any loans etc in there? Otherwise I suspect you may have been a bit "too cautious" in terms of your budgeting.

Who is the lender, as normally you would still be able to port the product even if you extend the term?