Building societies are leading for way for ‘mortgage prisoners’ with mortgage experts praising two building societies for easing their criteria to consider lending to borrowers transferring under the transitional arrangements in the Mortgage Market Review.
Lenders have come in for widespread criticism for leaving a number of particularly older borrowers stranded or facing hefty fees after refusing tough new affordability tests, despite MMR transitional rules meaning existing homeowners not increasing their loan are exempt.
The Melton Building Society is considering mortgage applications from borrowers under the transitional arrangements rules as a response to demand from borrowers who have become trapped on their current mortgage deal.
The Ipswich Building Society also launched a transitional lending scheme, with chief executive Paul Winter stating they were “standing up for mortgage misfits” often overlooked by lenders who insist on machine-only application processes.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “This is a crucial step and could be a lifeline for mortgage prisoners who are a good credit risk but are struggling to remortgage because they are self-employed, require interest-only or are 50-plus.
“We expect other lenders to follow suit,” he added.
Jeremy Duncombe, director at the Legal and General Mortgage Club, commented that he fully supports Ipswich and Melton’s decision to use the MMR’s transitional arrangements.
“Major lenders have so far failed to take advantage of this opportunity, so it’s great to see smaller lenders take the lead.”
He explained that the development was particularly important for self-employed or older borrowers who would find themselves unable to change lenders, even though this may reduce their repayments.
“The MMR was not intended to trap these borrowers in uncompetitive deals and it is a welcome move to see these building societies give them more options on their repayments.”
Robert Thickett, mortgage policy adviser at the Building Societies Association, told FTAdviser that the transitional rules which came in with MMR last year were designed to ensure that mortgage prisoners were not created.
“In principle it should be straightforward for borrowers coming off one deal to move onto another product, provided their mortgage stays the same size, they stick with the same lender and they have a good payment record.
“The positive moves by the Melton and Ipswich building societies are clearly picking up on a demand that’s not being met.”
Martin Reason, the Melton’s chief executive, said it was a lender’s responsibility to give existing borrowers who have a good payment records and no change of circumstances a choice of competitive mortgage products.
“As a mutual which takes a personal approach to lending we are best positioned to help these mortgage prisoners who may otherwise struggle with machine generated affordability tests,” he added.
Mr Winter added: “I’m aware that some lenders do not offer transitional arrangements to their existing borrowers, let alone new applicants, and I believe the sector should consider its responsibilities to existing borrowers who have consistently made their mortgage repayments and who otherwise would be classed as ‘good customers’.
“I would urge my peers at other lenders to think about making the mortgage market work more effectively for mortgage misfits by offering choices for those who fall outside the norm.”
The Financial Conduct Authority has already warned lenders about failing to apply transitional rules, while the Intermediary Mortgage Lenders Association complained that the MMR generally disenfranchises those finding it difficult to secure loans which end beyond their retirement date.
As for the banks, Virgin Money stated that they keep lending criteria under constant review, but have no immediate plans to change, while Halifax and Metro Bank similarly told FTAdviser that they are currently planning to stick with their lending criteria.
A spokesman for the Lloyds Banking Group brands also confirmed that they have no immediate plans to change, but added that ”we support all customers in these categories and we review our policies on a regular basis”.
peter.walker@ft.com
