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Small mutuals use transitional rules to gain from big lenders

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Small building societies are using the MMR’s transitional arrangements to mop up business from bigger lenders.

Last week, Ipswich and Melton Mowbray building societies publicly stated they were using the transitional arrangements to target borrowers from other lenders, as the rules allow.

The FCA introduced the transitional arrangements within the MMR to help borrowers who may become ‘mortgage prisoners’ because of the new rules.

The arrangements allow lenders to waive affordability checks for borrowers who may be trapped under the new rules as long as the customer does not wish to borrow more money, there is no ‘material impact’ on affordability and they have a good payment history. They can be applied to existing borrowers and customers from other lenders.

However, lenders have come under fire in recent months for not using the arrangements – especially for borrowers from other lenders.

Lenders say they fear regulatory comeback and will feel more comfortable using the arrangements once the FCA publishes the result of its responsible lending thematic review later this year.

But it seems smaller building societies are more willing to use the arrangements, for both their own customers and borrowers from other lenders.

Brokers and distributors have praised the mutuals for taking the lead on the issue.

L&G Mortgage Club managing director Stephen Smith says: “We’ve seen so many reports of trapped borrowers and lenders failing to take up the transitional arrangements that were included in the MMR, so it’s very pleasing to see these smaller lenders picking up that slack.

“It is certainly disappointing that the major lenders have not used the arrangements as extensively as they should have, and we have spoken out about that previously, so it is a welcome move to see the likes of Ipswich and Melton taking the lead.”

Lentune Mortgage Consultancy managing director Stuart Gregory adds: “I think the big guys are waiting to see others take the lead first and how that plays out, so it’s encouraging that these mutuals are doing just that.

“Hopefully, it will spark a reaction from the majors into using the arrangements as they were intended.”

Ipswich says it will consider borrowers who have held a mortgage since before the MMR and have no missed payments in their mortgage history. All standard mortgage products are available to borrowers up to a maximum 75 per cent LTV and homemovers are eligible to apply as transitional customers unless an extra borrower is being added to the application.

Melton Mowbray Building Society last week made a similar announcement, although it said it would initially service these borrowers through Sesame Bankhall Mortgage Processing.

All prime residential Melton products are available to transitional borrowers to a maximum 60 per cent LTV and maximum loan size of £350,000. The new mortgage rate and monthly payments must be equal to or lower than the borrower’s existing mortgage, which must have been held for at least three years with no arrears. 

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