Jonathan Miller, director at Bedfordshire-based Forte Financial Solutions, said building societies, such as Nationwide, were now prone to reject on the basis that clients cannot meet affordability criteria over a 25-year term.
Instead, mutuals were, in many cases, approving deals over a longer term, such as 30 years, forcing clients to overpay each month in order to repay the capital over the shorter term they originally wanted.
Mr Miller said: “If the clients are not proactive enough to make overpayments, this practice is going to cost them in the long run. I have frugal clients who simply want to get rid of their mortgage debt as soon as possible.
“One client who wanted to pay off their mortgage over 16 years was forced to accept a 20-year deal. It is galling for the client to see five or six years being added to the deal, particularly when their existing mortgage payments are higher than the new payments being proposed. It is clear that they have a proven ability to make higher payments.”
Another broker, who did not wish to be named, said that Coventry Building Society rejected a 13-year deal for his client, but offered a 24-year deal, which would earn the mutual an extra £34,566 in interest.
A spokesman for the Building Societies Association said: “Building societies have long been assisting first-time buyers and second steppers to get on or move up the housing ladder. However, if a borrower does not meet the required affordability checks over the term they would like, another option is to take a mortgage over a longer term.
“There are a range of products available on the market, including the ability to overpay if the borrower chooses. If they find that they have surplus income, there is no reason why a borrower couldn’t overpay their mortgage, thus reducing the term and the total interest payable.
“Many lenders offer a mortgage review facility enabling borrowers to ensure that they remain on the right deal for their circumstances.”
Donna Hopton, founder of broker forum Cherry, said most advisers feel that lenders should follow the rules and base affordability on what is available to the client, adding: “If the client prudently wants a 15-year term, they should be allowed to do it.”
Adviser view
Adrian Anderson, director of London-based broker Anderson Harris, said: “‘This is likely to be a knee-jerk reaction to MMR, with lenders trying to ensure that borrowers can afford their mortgages when interest rates rise.
“However, it does not seem to follow that someone paying a higher rate of interest with no problems before they remortgaged would then struggle on a lower rate, and maybe not much common sense is being applied.
“With MMR, it comes down to how lenders interpret the FCA guidelines and some are being less pragmatic than others.”
Right to reply
A spokesman for Coventry said: “Our affordability model will calculate a maximum loan amount along with a maximum monthly mortgage payment for a given customer based upon their available disposable income taking into account any future changes in interest rates. This maximum monthly payment would mean that the term of the mortgage will affect affordability and how much we will lend.”
Nationwide declined to comment.
