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Will the MCD move on mortgage prisoners make any difference? Marketwatch

  • 08/04/2015
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Will the MCD move on mortgage prisoners make any difference? Marketwatch
It has been under a year since the transitional rules were first introduced via the Mortgage Market Review (MMR).

These rules were programmed into the Mortgage Conduct of Business (MCOB) requirements to help lenders cater for those borrowers who took out a mortgage before the MMR rules were introduced.

The aim of the rules was to stop the creation of mortgage prisoners by allowing lenders to sidestep the affordability assessment. This flexibility was available to lenders to apply to both existing borrowers and those remortgaging from other mortgage providers.

But one of the big surprises of the final rules of last month’s European Mortgage Credit Directive (MCD) was that the latter option (for remortgagors) was removed.

We asked our panel of experts if the withdrawal of this allowance will make any real difference to consumers or the volumes of business it facilitated, given the lack of take up of the transitional rules among lenders.

Robert Sinclair, chief executive, Association of Mortgage Intermediaries and Association of Finance Brokers, says that while the loss of the facility for those borrowers changing lender will make little difference now, given its low usage, it is likely to cause significant harm in the future.

Paul Broadhead, head of mortgage policy at the Building Societies Association, says it’s a shame that allowing the affordability assessment to be turned off for remortgage borrowers was seen as a step too far by the regulator.

Dominik Lipnicki, director of Your Mortgage Decisions, thinks that the mortgage prisoner issue should rank far higher on the agenda and lenders must rethink policy to stop borrowers getting into difficulty when rates rise.


robert-sinclairRobert Sinclair is chief executive of the Association of Mortgage Intermediaries and the Association of Finance Brokers

It has been a source of extreme frustration that very few lenders have chosen to apply the transitional provisions allowed under the MMR rules.

Every broker in the UK has examples of customers who have been reliable mortgage payers, no blemishes on their credit file, but struggle to obtain a remortgage or even get a new deal from their existing lender.

This is often because they are self-employed and previously self-certified, or now have credit scores below the new higher thresholds being applied and their lender sees them as having difficulty in moving. The transitional provisions that avoid the need for a full credit assessment should help these people and are still fully available until 26 March 2016.

The loss of the facility for those changing lenders will make little difference, based upon usage by the larger lenders to date. There has been some good progress from smaller lenders but the big boys should hang their heads in shame at their failure to use these provisions for all existing customers, never mind new.

However, it should be seen by all, and the consumer press in particular, as an issue liable to cause significant harm once prevailing rates start to increase. This might happen sooner than people think as mortgage rates are not linked to Base Rate, and a precarious majority in the next Parliament may cause market rates to rise sharply.

paul-broadhead-2011Paul Broadhead is head of mortgage policy at the Building Societies Association

During the course of its consultation the FCA identified a conflict between the MCD and the current affordability rules for existing borrowers remortgaging from other lenders.

As a result lenders will no longer be able to switch off the affordability rules for existing borrowers from other lenders.

With the publication of the final rules being the first mention of this exclusion it was clearly a major upset for brokers who have been calling for lenders to actually start applying the transitional rules in the first place.

Some building societies had already started to offer remortgages applying the transitional rules to existing borrowers from other lenders. More firms were also weighing it up as something worthwhile to branch out into.

Clearly the application of the transitional rules to borrowers from other lenders without any affordability assessments has been judged a step too far.

The FCA has rightly criticised lenders over the last year for not taking a commonsense approach when it comes to applying the rules to existing customers and questioned whether firms were truly thinking about their customers’ best interests where they have not been applied.

But with the change to transitional the rules, it is now even more important that existing borrowers merely transferring to a new deal should not be left prisoners on a higher rate simply because they do not fit the new affordability criteria.

If they have proven that they can pay, have an existing mortgage and fit the product criteria they should not find themselves trapped.

dominik-lipnicki-1Dominik Lipnicki is director of Your Mortgage Decisions

I’m afraid this change will be barely noticeable given that so many lenders have pretty much ignored transitional rules for remortgage borrowers. It is a real shame that they missed the opportunity to get these borrowers onto stable, fixed rates.

The mortgage prisoner issue should be far higher on the agenda as far as I’m concerned. So many people are teetering on the brink and we simply don’t know how many will sink when rates go up. That is very worrying indeed but there is no sense of urgency to address the problem.

Repossessions have been kept at bay but many borrowers will need a lifeline.
As far as I can see, the only chance of a change of direction will be if lenders get so behind with their lending targets that they are forced to rethink their criteria. They really can achieve this without falling back into the realms of irresponsible lending.Those days are gone but the pendulum has swung too far in the other direction.

Lenders need to be far less restrictive towards borrowers. That includes people who want to borrow beyond the so-called ‘retirement age’, interest-only borrowers, zero hours contract workers and of course, the self-employed. Criteria should reflect reality and lenders need to wake up to it.

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