Building societies' move may end `cashback' mortgages
Wednesday 10 June 1998
The council of the BSA will decide whether to press for the penalties - which penalise borrowers for redeeming mortgages before a set period - to be outlawed under the new mortgage code.
If the proposal were accepted, "cashback" mortgages, which offer lump sums up front in exchange for a lock-in, would no longer be sold to new customers. Those fixed-rate mortgages which lock customers in after rates have ceased to be fixed would also be affected. Discounted mortgages, which offer rates up to 1.5 per cent lower than normal for the first one or two years, would also be affected.
The BSA claims the penalties, which typically amount to 5 per cent of the remainder of the loan, confuse customers and distort competition by locking them into a particular lender - no matter what rate is offered.
A spokeswoman for the BSA said there was a question over whether it was fundamentally unfair to lock customers into a lender which was free to change its rates at any time.
"We are considering calling for a ban on all redemption fees on variable rate loans," said the spokeswoman. She added: "Is it fair that the lender can vary interest rates when the customer is locked in?"
The BSA claims many lenders are taking an up-front loss on the new mortgages, while existing savers and borrowers suffer poorer rates. They also say borrowers can suffer "payment shock" when a fixed-rate period ends and they are locked into an interest rate which could cost twice as much.
The BSA acknowledges that it will need the support of banks if the proposal is to become part of the mortgage code, which came into force on 1 May. Banks will debate the issue at a meeting of the Council of Mortgage Lenders next month.
The debate over redemption penalties comes amid an intense mortgage price war in which customers are being lured away from their lenders with the offer of discounts, cashbacks and fixed rates.
Of the pounds 77bn lent out last year, 41 per cent was in fixed rate mortgages. Of the remaining 59 per cent in variable rates, the overwhelming majority include some form of discount or cashback.
Mortgage brokers, however, are suspicious of the BSA's moves - with one referring to it as "the thin end of the wedge of price-fixing". They fear lenders are backing away from stiff competition on the high street which has brought unprecedented benefits for the consumer.
Chris Scales, director of the Mortgage Guild, a 200-strong association of mortgage advisers, said: "We are against any form of cartel, either in price or product fixing, which could be used to the detriment of the consumer."
- 1 BBC told new political editor must be 'impartial' with Nick Robinson reportedly stepping down
- 2 Humans of New York image of crying gay teen receives best response yet from Ellen DeGeneres
- 3 Number of young homeless people in Britain is 'more than three times the official figures'
- 4 Motorists taunt suicidal woman on bridge and tell her to 'get on with it'
- 5 The map showing the most dangerous tourist destinations in Europe, according to the Foreign Office
BBC told new political editor must be 'impartial' with Nick Robinson reportedly stepping down
Isis propaganda video shows 25 Syrian soldiers executed by teenage militants in Palmyra
Humans of New York image of crying gay teen receives best response yet from Ellen DeGeneres
Number of young homeless people in Britain is 'more than three times the official figures'
The map showing the most dangerous tourist destinations in Europe, according to the Foreign Office
More Britons believe that multiculturalism makes the country worse - not better, says poll
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
iJobs Money & Business
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...