Yesterday, Chancellor George Osborne quite rightly questioned the absurdity of an existing borrower who has not missed payments being told by a lender that they cannot afford a new mortgage at a lower rate.
Bravo, Mr Osborne, you are spot on and it is great that you have twigged this absolute scandal that has been working against consumers for the past two years. Credit also to Martin Lewis, of MoneySavingExpert, for gaining your ear on this.
It would appear, however, that Mr Osborne has not been given all of the facts, at least not in an unbiased way. Whilst Martin Lewis explained things fully, it would appear that others may be trying to portray an alternate and fictitious reality to try to downplay the real issues the MMR has created.
Ever since the MMR lenders have tucked up sections of their back books by implementing transitional provisions for existing customers, but not new ones, despite the fact the provisions were specifically designed to cover both types of borrower.
The FCA pointed out correctly that transitional provisions on affordability could not be applied post-Mortgage Credit Directive as it required an affordability assessment on all new cases – and this was also an over simplification that has not helped either.
I remember clearly when this last minute entry into the FCA’s MCD implementation thinking surfaced that many lenders breathed a huge sigh of relief. Deep down they knew that partial use of transitional provisions in such a market-wide fashion laid them open to the charge that they were benefiting at borrowers’ expense.
Here is the crux of my problem: while MCD states that an affordability assessment must take place, it does not stipulate the form of that assessment.
Being a reasonable person I think it is fair to say that a borrower who has maintained all existing mortgage payments; is not borrowing more money; has a clear credit check; can evidence their current income; and has not racked up other borrowing can be fairly assessed as meeting any ‘reasonable’ affordability test, whether they be staying put, or switching lender.
Perversely, many lenders have taken a different view, as many seem to think that if these questions relate to an existing customer, it is fine and they will let them take a product transfer, but God forbid that they relate to a new customer.
Bizarrely, the customers may be exact clones but the new borrower may be told: “We are very sorry but we can’t lend to you as we don’t believe the mortgage you want (and have been paying) is affordable.”
This is an absolute scandal.
So who exactly benefits when borrowers are stripped of their right to vote with their feet – the lender, or the borrower?
I have shouted about this loud and hard to lenders, trade bodies and regulators alike for the past two years.
Despite presenting the facts, I was amazed to read FCA’s Mortgage Market Competition & Responsible Lending Reviews saying that there was no material issue with mortgage prisoners.
This view feeds into Mr Osborne’s letter where the FCA is referenced in the last paragraph alongside an assurance about lenders using transitional provisions.
Yes, Mr Osborne, lenders are using them, but only for existing customers. And in so doing they are stripping many customers of their ability to vote with their feet and search for a better deal.
At the very least lenders should either be forced to apply transitional provisions in a fair and consistent way to both new and existing customers (i.e, not for one, but not the other) or offer their new business products to existing customers.These actions would rebalance matters and make things fairer for hard working borrowers who have met all of their past commitments.
The FCA’s has recently published its Business Plan, which included the treatment of existing customers as one of seven key themes. Now is the time for them to take a leadership position on this and place consumers’ interests first.
Many product transfers executed by lenders for existing customers are conveniently carried out on an execution-only basis without the advice that would, in many instances, have been compulsory if they had been a new borrower. This creates yet more consumer detriment with the lenders interests trumping those of their borrowers.
A major lender has recently estimated that this hidden, unreported part of the market (retention product transfers) may now amount to as much as £80-100 billion. I am sure that for such a significant amount of lending the FCA will be able to provide full data on these breakdowns in both the lender and intermediary channels. In a £220bn market, this is a very significant chunk of business.
I can only think that certain parties have had the wool pulled over their eyes before reaching certain conclusions. The only alternative is that they have knowingly ignored such an important issue – either way it is scary.
Pat Bunton is chairman of the Association of Mortgage Intermediaries and a director of London & Country Mortgages