Mortgages  

Barclays applies exemption to borrowers hit by cap

Barclays applies exemption to borrowers hit by cap

Existing Barclays borrowers coming to the end of a time-limited mortgage rate deal, and whose mortgages are above a newly-applied blanket earnings cap, will be allowed to switch to a new rate under a transitional rules exemption within the Mortgage Market Review.

On Friday Barclays announced all its mortgage lending will now need to adhere to a maximum of 4.5 times loan-to-income with immediate effect, following guidance issued by the Prudential Regulation Authority last year.

A statement to brokers explained that any cases submitted which are greater than 4.5x income will be declined at the underwriting stage as part of tougher affordability tests. Barclays’ previous maximum was 5.5x income.

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When asked how many existing mortgage customers would now fall outside the four-and-a-half loan-to-income bracket, a spokesman for Barclays stated these numbers were “commercially sensitive information”.

However the spokesman confirmed that unlike rivals who have failed to use the MMR transitional affordability rules, existing Barclays customers that are approaching the end of their current fixed or discounted rate are free to switch rates without a need to assess LTI.

The spokesman said: “We will inform customers three months before the end of their current fixed or discounted rate matures of alternative competitive rates they may wish to consider.

“There is no need to re-assess the customer’s affordability as only the interest rate is being amended. A product fee may apply.”

The comments leave open the possibility that customers seeking to move or port their mortgage but not increasing their borrowing, who are also covered by the transitional protections, will not be spared an affordability test in the same way.

A number of providers have been criticised in recent months for refusing mortgages for existing borrowers, including some on existing discounted rates, after they failed affordability tests the MMR exemption states lenders do not need to undertake.

Last year during an FTAdviser debate, Lynda Blackwell, mortgages and mutuals sector manager at the Financial Conduct Authority, hinted strongly that the regulator could seek to apply Treating Customers Fairly rules in relation to the practice.

David Hollingworth, associate director of London and Country Mortgages, said Barclays’ clarification was good news for existing customers as they will still be able to transfer to a new rate without having to undergo affordability assessments so the new cap will be irrelevant.

“It is therefore something that will only affect existing borrowers that want to move and/or increase their borrowing with the lender, as they will obviously have to be able to demonstrate that they can meet criteria.

He added: “This change will have a bigger impact on new borrowers looking to borrow at the further reaches. Affordability remains the principal test for borrowers but the new LTI cap will place a maximum limit, even for those that sail through the affordability test.”

emma.hughes@ft.com

Additional reporting by Ashley Wassall