Mortgage hunters to find lenders are making life harder
Savvy Money: The way banks and building societies interpret new rules for home loans may cause problems
Saturday 26 April 2014
Saturday was a big day for the mortgage industry - and for anyone who wants to buy a property or remortgage in the future.
Lenders will have to abide by new rules which mean they must make sure that someone can afford the mortgage they want to take out. They'll also have to give advice, in most cases.
Banks and building societies will still be able to let people take out interest-only mortgages - although some have already decided they don't want to. However, they'll have to make sure there's a "credible strategy for repayment" - i.e. that the borrower has a way of paying the loan off.
Very few people are taking out new interest-only mortgages to buy a property, but last year figures from the regulator, the Financial Conduct Authority (FCA), showed around 2.6 million people already have them.
The FCA has said that mortgage lenders can make use of what are called "transitional rules" if a customer doesn't want to increase the size of their mortgage. These rules will mean that lenders can let customers remortgage without necessarily fulfilling the FCA's criteria for having a credible repayment strategy in place.
You might be scratching your head thinking "why would a lender not want someone to have a repayment strategy in place?". It's a fair question. The problem isn't so much with the theory, rather it's with the way some lenders are interpreting the rules. And, if you want to borrow more, you won't be protected by these transitional rules anyway.
For example, if you have an endowment, it's likely that your lender will take future payments that you make and projected growth (based on growth rates set out by the regulator) into account when working out how much you can borrow on an interest-only basis.
So if, for example, your endowment is currently worth £100,000, but it should be worth £135,000 by the time it matures and your mortgage term ends, you should be able to borrow £135,000, as long as you meet the lender's other criteria. Lloyds Banking Group, Santander and Co-operative Bank are among those that take this approach.
However, if you're relying on something like a stocks-and-shares Isa to pay back your interest-only mortgage, your lender may only take its current value into account - even if you're committed to putting money into it every month until your mortgage is paid off. Yorkshire Building Society and Santander are two that assess current value only.
In some cases lenders are even stricter. Not only will they ignore future growth and contributions, they'll only lend on a percentage of your investment's current value.
For example, Lloyds Banking Group will only take up to 80 per cent of the current value of an investment like a unit trust, shares or a stocks-and-shares Isa into account, and it must be worth a minimum of £50,000. So, if you want an interest-only mortgage of £100,000, you'd need investments worth £125,000 at the time you apply in order to be accepted.
HSBC takes the same approach with stocks-and-shares Isas. Barclays (which provides mortgages under the Woolwich brand) is one of the few that says it takes both future growth and future payments into account.
Ray Boulger, of mortgage brokers John Charcol, says that lenders are "running scared" of the FCA and that their rules aren't logical.
A number of lenders won't let you use cash savings, premium bonds or cash Isas to pay off your mortgage, or - in some cases - buy-to-let property. Mr Boulger wonders how they will cope with the new Isa rules in July which will mean money can be transferred from a cash to a stocks-and-shares Isa, and vice versa.
I can't work out why a lender would only take a percentage of an investment's value into account or why it wouldn't use the FCA's growth rates when assessing how someone will repay their interest-only loan.
Lenders - and borrowers - need to be responsible, but this inconsistent approach doesn't seem to sit well with "treating customers fairly".
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Scottish referendum: So how about the English now being given a chance to split from England?
- 2 Stamford Hill council removes 'unacceptable' posters telling women which side of the road to walk down
- 3 Kim Kardashian 'naked pictures' leaked on 4chan weeks after Jennifer Lawrence 'The Fappening' scandal
- 4 Matthew Miller: American sentenced to hard labour in North Korea 'wanted to be Snowden II'
- 5 Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Archbishop of Canterbury admits doubts about existence of God
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
Day In a Page
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize