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Homeowners trapped as lenders claw back cheap loans

Mortgage lenders are refusing to transfer existing loans to new properties and imposing swingeing early repayment penalties, warns Lorna Bourke.

 
Homeowners trapped as lenders claw back cheap loans

Refusals to allow homebuyers to move loans have prompted suspicions that lenders want repayment of cheap money to lend it out again at a higher rate, says Lorna Bourke.

Who's in line for penalties?

Thousands of homeowners have been left unable to move house because their mortgage lender is refusing to allow them to transfer their loan to the new property. Even worse, if they arrange a mortgage with a new lender and pay off the old loan, many face swingeing early repayment penalties. Is this treating customers fairly?

An estimated million homebuyers who raised mortgages under self-certified lending criteria may no longer qualify for the loan they already have – even if they can clearly afford it because they have never defaulted. Similarly, an estimated million or more are trapped because their financial circumstances, or the lenders’ affordability criteria, have changed.

For example, homebuyers with 'interest-only' loans now have to prove that they could afford a full repayment mortgage.

'We receive around 650 complaints a month about lenders’ refusal to allow homebuyers to "port" their mortgages to a new property,’ confirms Emma Parker of the Financial Ombudsman Service (FOS). ‘Part of the problem is that there is quite a big variance in the lenders’ terms and conditions relating to "porting", and they are sometimes ambiguous.’

No automatic mortgage transfer rights

Unfortunately, many borrowers assume that the ability to transfer a mortgage to a new property is automatic. ‘They don’t realise that they will have to show that they can meet the criteria currently in place when re-assessed,’ explains David Hollingworth of mortgage broker London & Country.

‘That leaves the borrower with the dilemma of whether to stay put or look for a more flexible lender, which could in turn result in the need to pay an early repayment charge,’ he says. 

Depending on the type of mortgage, this could mean a penalty of £10,000 or more. A typical fixed-rate mortgage will a penalty for the term of the fix, so a 5% early repayment penalty – by no means uncommon – on a £200,000 loan works out at £10,000.

Ulterior motives?

What makes this practice particularly difficult to swallow is that the lender doesn’t have to give any reason why the request to transfer the loan has been refused. Where a borrower has a low-cost lifetime tracker loan – many of which were at bank base rate plus 1% or even less – there is a deep suspicion that the refusal to allow the homebuyer to port the loan is motivated by the lender wanting repayment of this cheap money in order to lend it out at a higher rate.

More important, is this ‘treating customers fairly’ – one of the regulator’s key requirements? ‘Portability is a product feature that lenders may choose to offer – and many do,’ says Cerris Tavinor of the Financial Services Authority (FSA). 

‘However, it is not an automatic right,' she says. 'We expect the product terms and conditions relating to "porting" to be fairly drafted, and the lender will need to permit exercise of the facility in accordance with those terms and conditions.’ 

Tavinor points out that the FSA is well aware of the potential for lenders to treat customers unfairly and is watching them closely. ‘Any early repayment charge must reflect only the costs incurred as a result of repaying the loan early. We say that it can be a reasonable pre-estimate of the costs. It should not be an income stream in its own right.’ This is important if you are likely to suffer a hefty 5% penalty.

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29 comments so far. Why not have your say?

chrisa

Jan 10, 2012 at 12:45

I have a 'portable' BTL mortgage with Scottish Widows, at ~1% :), they refused to port it claiming they no longer did mortgages!

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Anonymous 1 needed this 'off the record'

Jan 10, 2012 at 12:46

I am advisor and always explaint to clients that they should not put a mortgage on the basis of being able to port it. From my experience clients want their cake and eat it. They demand the lowest rates and yet do not read the small print. I have not had a failed porting yet!

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Mombers

Jan 10, 2012 at 12:57

Moving house carries costs, which get significant once you are subject to stamp duty. If you move, unless you are getting a much better job, you lose thousands of pounds in the move, so the lender gets a lower quality loan out of it as you have even less money afterwards. A pretty simple business decision being made here.

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MC

Jan 10, 2012 at 13:01

This is a none story and just highlights the general ignnorance of people in this country to financial matters.

A mortgage is a specific product to fund a specific transaction i.e buy a specific house. If you want to buy a new house you will have to repay your old mortgage with a new one and comply to the new terms.

How many people got new mortgages at better rates/terms during the boom? You can't complain when the reverse is true.

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Anonymous 2 needed this 'off the record'

Jan 10, 2012 at 13:07

Fairly typical piece by LB serving her own pro-property investor agenda. The cost of mortgages have gone up to reflect the cost of funds for the Banks goin up its simple economics. Banks rightly are using any opportunity to pass on increased costs as would any supplier of goods or services.

Funny how you don't write scathing articles about landlords putting rents up Lorna?

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MC

Jan 10, 2012 at 13:12

One other point when a bank offers you a fizxed rate it buys this rate in the market for the term of your loan. If you want to repay it early it has a break cost (not a penalty) reflecting the difference between said rate and the current market rate. As market rates are lower now than they've ever been the cost of breaking a fixed rate is high. If your faced with this break cost now I would have to point out it is your own fault for not planning ahead. If you plan to move in 2 yrs fix for 2 not 10.

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Chuck

Jan 10, 2012 at 13:44

Mortgage payers that cannot move (port) because the value of the house (loan collateral) has gone down are being treated fairly.

Mortgage payers that cannot move because loan criteria have become more restrictive (2-3 years after the worst financial crises in 60years) are being treated fairly.

Mortgage payers that have to pay the contractually agreed exit fee if they pay their mortgage off early are being treated fairly.

Mortgage payers are already getting special treatment: other leveraged purchases/investments/gambles involve margin calls (where you will have to pay in more money), if the collateral has fallen in value, to bring the loan back to the initial Loan To Value!

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Knowledgable insider

Jan 10, 2012 at 13:46

Like all so called financial journalists Ms Burke is befriending the dopey consumer who have, as usual, chosen short term gains at long term costs. Choosing the cheapest option is often not best and it is wrong to always accuse the providers for pretecting their profits in a legitimate way.

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Anonymous 3 needed this 'off the record'

Jan 10, 2012 at 13:55

I am a mortgage broker.

This is more to do with the FSA making banks verify the affordability of every loan nowadays. Banks (in my opinion) do not have any agenda to 'get rid' of clients from good rates when they move. Banks may very well want to be flexible about income evidence for some genuinely 'trapped' clients who want to move and take their mortgage with them (perhaps even a lower mortgage?), but FSA will not let banks do this nowadays.

Whether you agree / disagree with lenders being allowed to lend without income proofs in certain circumstances is a separate debate. Banks have always treated a 'port' as a new application and may decide that the new loan is not an acceptable risk themselves, however i would guess that a significant proportion of these 'trapped' clients with a perfect payment record are falling down because of FSA rules being imposed on banks, rather than rules voluntarily changed by the lender.

Reckless lending is wrong it shouldnt have been allowed to happen, but a sensible approach needs to prevail for good quality customers looking to port a similar level of borrowing to what they already have.

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Ale

Jan 10, 2012 at 13:55

"An estimated million homebuyers who raised mortgages under self-certified lending criteria may no longer qualify for the loan they already have – even if they can clearly afford it because they have never defaulted"

That is the sort of argument that led to the financial crisis in the first place. Its hardly surprising that in a group of people with cheap mortgages that were secured in better times, none have defaulted. If the banks are really that keen to get out of the deals, they would surely pounce on the first missed payment!

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Maastrade

Jan 10, 2012 at 14:18

The sooner the market gets back to the responsible lending days the better. It was the irresponsible lending that fuelled the boom in house prices and took the market to its current unaffordable levels for first time buyers. 3.1/2 or 4 times joint or single income was the norm once upon a time and sensible lending would indicate these levels again. This should bring about an adjustment in the housing market, such as to allow the first time buyer entry.

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P Cash

Jan 10, 2012 at 14:44

Maastrade

Great idea, lets let house prices tumble so that the security banks have for all their loans diminishes and increases the risk of their mortgage book. Then they will hoard cash and restrict borrowing. As no-one knows where the bottom of the market is or when it will come we can be caught up in credit crunch 2 for another few years! Throw in those people who default and hand their keys back when they get to negative equity and we have a real recipe for success. On the plus side the first time buyer you refer to can pick up a bargain..... oh no, wait...... they wont be able to get a mortgage without a 25%+ deposit because house prices are tumbling and banks are risk averse in such situations!

the 3.5 and 4 x income multiples were around when interest rates were 8, 9, 10% plus, not really relevant in todays world, although assessing mortgages on a nominal interest rate of say 5.5% is sensible.

Maybe we just tick along and let house prices drift a touch and let earnings catch up over the next few years?

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Lord Lucan

Jan 10, 2012 at 15:06

"Maybe we just tick along and let house prices drift a touch and let earnings catch up over the next few years? " Just like we are now, using low interest rates and high inflation. I for one am perfectly happy to see my savings and pension eroded to protect the interests of profligate lenders and irresponsible borrowers, anyone with me?

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Chris Hayes

Jan 10, 2012 at 15:07

It won't be PC of me I'm sure but sod it.

How uplifting it is to see so many challenges above to "little orphan LB" and her latest attempt to ride her bandwagon through Dodge.

I wish all these complaints that are being encouraged (see also the "success" - and therefore "failure" - rate for PPI claims) had to be submitted at a cost of say £10 - refundable on success (or even "near miss"). Something needs to be done to discourage the chancers and encourage people to read the damn small print...jeez, even the Key Facts would be a start.

Where are the complaint handling costs going I wonder.....?

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Chuck

Jan 10, 2012 at 15:18

@P Cash.

For the UK to "let house prices drift a touch and let earnings catch up over the next few years?", you will need above target inflation (specifically wage inflation). I'm not sure how that is anymore sustainable then letting the housing "market" (it is not like other markets, and currently not operational) fall to values implied by fundamentals. Somebody has to lose, it is just a question of who.

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Old Young or Young Old?

Jan 10, 2012 at 17:58

I was able to port a stupidly low lifetime track mortgage a couple of years ago. I was however amazed to see that we were charged a £250 exit fee for stopping the mortgage on the old address and starting it all over again on the new address. Probably should consider myself lucky that I wasn't charged a new arrangement / legal fee etc as well. I'm not convinced that it actually cost them £250 in administration cost to simple change the address.

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Chuck

Jan 10, 2012 at 18:12

@Old Young or Young Old

Does the £250 include the cost of the survey on the new property? I'm sure the bank would like to know the condition of the new collateral secured against the existing loan.

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Old Young or Young Old?

Jan 10, 2012 at 18:33

Hi Chuck, we had to take out a second mortgage to buy the property and paid the lender an additional fee for a valuation survey to obtain this mortgage. On the one we ported there was no survey conducted it was purely the fee set out in the mortgage T&C for when the final payment was made to wrap the mortgage up. You know, the money for old rope clause.

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majic

Jan 10, 2012 at 20:00

I am with Lord Lucan (above) all the way. It would be so sad if all the sacrifices which we have made in recent years by accepting virtually negative interest on our savings were to be lost if the profligate borrowers are unable to continue to receive low interest mortgages at our expense.

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Anonymous 4 needed this 'off the record'

Jan 10, 2012 at 20:54

This is excellent news. Self Cert & IO mortgages are one of the main reasons we have such stupidly low interest rates at the moment. I am sick to death of having to subsidise the feckless, greedy mugs who over borrowed earlier in the decade.

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Paul Barrett

Jan 11, 2012 at 03:03

Nobody in their right might is going to take a hit on their property price.

You do not need to sell your house to move.

All you have to do is rent it out and rent where you need to be.

It will take about 20 years before wages are sufficent to afford properties puchased at the height of the property boom.

It will then take about another 10 years before there is sufficient equity to make it worthwhile selling up and pocketing some tax free PPR cash.

It is actually better to sell up and hide the money away so that when you need to be in care home the state has to pay for everything; just like somone who hasn't done a stroke of work and has been on benefit all their lives.

With a vibrant rental market no one needs to sell .

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Brian Stafford Garthwaite

Jan 11, 2012 at 08:26

I am retired very modest pensions which are certainly not keeping up with the rising cost of gas electric and food. There are people much worse situations than myself, many relying on building society deposit interest to pay their bils,

Currents depoist rates do not even compensate for inflation,let alone provide any return. I am now reducing my building society deposits, waiting for the some more index linked saving certificates.

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Bazuado

Jan 11, 2012 at 11:40

I think we are missing the point here. Yes lending in the past has been reckless and some people who have borrowed money should never have been given it in the first place, but the past is the past.

Providing someone is offering security of equal or better value, not asking for additional borrowing and has no past payment issues, then why should the lender not let that person move (subject to a suitable admin fee to cover costs). If they dont, social mobility is constrained and that can only be bad for the economy. By letting them move, the lender is in no worse position than making them stay.

However, if they want more money or different terms then they go into the market and pay what is required if the current lender is not prepared to port or lend more. They should also pay any break fee on their current deal.

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Chris Powell

Jan 11, 2012 at 15:42

I think most large lenders allow you to move/port your mortgage over, as long as the loan to value is the same or lower, you can afford the new mortgage on the lender’s current affordability calculator, your credit is still good, the property you buying is one the lender will allow you to borrow on and it does not affect your loan to value (some lenders will only lend 75% loan to value on x council flats). The facts are that you should be treated like a new customer who is in need of a mortgage for a purchase and no different.

What is the problem!

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Paul Barrett

Jan 12, 2012 at 05:06

The problem is nobody can meet this new criteria which is why properties are not being sold.

Even if you some equity the new rules still prvent you moving.

The net effect is lenders won't be able to lend new money as the borrowers can't move.

So there sit the borrowers and lenders looking at eachother; blinking impassively and going nowhere!

Lenders will have to realise that the new criteria will not work when there is so much negative equity, reduced wages, and excewssive fees to move properties.

It will take decades for this situation to inflate away

There is also no guarantee that wages will increase sufficiently to afford mortgages under the revised criteria,

so I am afraid people with property are lucky as they can rent out and go and rent where they need to be and not crytalise any capital loss on their proerty and people who haven't got property, tough, you will have to rent for years to come.

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Rose G

Jan 12, 2012 at 12:33

The government's daft policies, together with the banking industries even dafter lending policies for mortgages, & the so called property owning section of the population are out of their heads - the reason why property in this country is so out of reach of the ordinary person earning an average wage is because of the daft practices as listed above - maybe now that lending criteria has been reviewed, & people are expected to prove that they can afford the mortgage, maybe property prices have a chance of being realistic.

I cannot shed even one tear for mortgagees who have no common sense & expect sympathy!

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Paul Barrett

Jan 12, 2012 at 13:35

The problem is there is never a right or wrong time to enter the market.

Hopefully one enters at the bottom; but if not one has to wait for the debt to inflate away and for wages to increase before properties may be sold.

This will take decades so I am afraid FTB's are stuffed as n one needs to sell at a loss anymore now there is a vibrant rental market.

No sympathy therefore is required; no common sense is needed.

If you wish to enter the property market as an investor or reidential buyer.

You stand very little chance of 2nd guessing the market.

I am able to make godd profits from my BTL properties but it will take decades before the negative equity is restored.

So I won't be selling which means my properties will be unavailable for purchase; though they will b e available for rent by frustrated FTB's who can't as I refuse to sell at a loss.

I couldn't if I wanted to either; you cannot short sell in the UK, the mortgage company decides whether you can sell.

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Anthony Perkins via mobile

Feb 11, 2012 at 18:16

Hi totally agree with your article

I wanted to port my existing mortgage in 2009

after switching rate from SVR of 7.13% in 08 to my

lenders lifetime tracker .84%.

Added to this I have ltv less than 30% and could have reduce the existing balance by min 60k. Resulting in ltv on new home less than 15%

Fos took my case on lost the file refused after asigning three teams to adjudicate on my complaint.....they won't award anything as it would obviously expose bank to multi million pound law suits.

The lender does not support debt reduction or the housing market..... They robbed me of my equity and made me a mortgage prisoner. We need to do something this is morally wrong.

Regards

Anthony

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Ben via mobile

Jul 03, 2012 at 18:49

My ex partner and I have a BTL with TMB. She would like to come off the mortgage. TMB have refused to take her off the mortgage as they are no longer taking new business! We have about 15% in the property and I bank with the Halifax. Both TMB and Halifax have refused to offer me anything on similar terms... Is this right ?

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