The survey results formed the basis of the analysis: Lender evasion on policy disclosure raises doubts for mortgage prisoners
1. Do you use the Transitional Arrangements for your existing borrowers?
2. Do you have a separate process for assessing borrowers under TAs if a broker flags to you at the outset, pre-application, that a customer needs to be assessed under the transitional rules?
3. How can a broker find out what your process is for assessing borrowers under the TAs?
4. What is your process for assessing borrowers under the TAs?
5. How and when do your systems and procedures identify a borrower who requires an assessment under the TAs?
6. On average, how long does it take to process a case from receipt of the application to production of offer for a customer who passes your affordability assessment in the conventional way?
7. On average, how long does it take to process a case from receipt of the application to production of offer for a customer who is assessed under the TAs?
Mortgage Solutions received the following responses:
Lloyds Banking Group
2. No, this is not something we would expect the intermediary to identify. The Transitional Arrangements regulations are within MCOB 11 – Responsible Lending, and therefore the responsibility of the lender not the intermediary.
3. We have a defined set of circumstances under which we apply transitional rules and where appropriate we have embedded these within our sales process. We continually review our policies to ensure we meet the needs of customers, whilst also ensuring we lend responsibly.
4. We have defined the circumstances in which Transitional Arrangements would be applied. The application of the Transitional Arrangements are embedded within our standard process.
5. See above answer.
Following a request for specific details, Lloyds Banking Group sent the following response:
“We use TAs to support existing customers – below is an example of how we utilise Transitional Arrangements:
If a customer with an interest-only mortgage completes a mortgage review and does not have a suitable repayment plan and is not in a position to transfer to full capital and interest, we will allow the case to proceed on a part-and-part or interest-only basis utilising Transitional Arrangements.
“We continually review our policies to ensure we meet the needs of customers, whilst also ensuring we lend responsibly and as part of these activities we are currently examining the FCA’s feedback in the Responsible Lending Thematic Review findings, published last Monday.
“The use of Transitional Arrangements would only be required if the customer has failed the affordability assessment therefore it could not be picked up at an earlier stage in the process.
“We have built the application of TAs in to the process and therefore we do not require an underwriter referral to be completed by the customer or broker.”
“Existing mortgage customers have access to Nationwide’s full range of mortgage products and our best rates. Should they wish to switch products, with no additional borrowing or change in term, they will not undergo further credit scoring or affordability assessment.
“As a customer-focussed organisation, existing mortgage customers are also be eligible for our Loyalty Rate Mortgage initiative, which compares the society’s mortgage rates for existing customers to those of its top six high street competitors and guarantees switchers the best available rate.
“Nationwide has a duty of care to its members and therefore all new mortgage customer applications are individually assessed and based on a number of factors, including affordability and credit scoring.”
“Following the recent published findings from FCA in their Thematic Review: Responsible Lending Review paper we are working with the transitional rules outlined to help our customers look for new products on their existing properties, when they are moving home and also when they are looking to transfer their lending to the new property.
“Existing Santander customers do not need to go through new affordability checks when applying for new products. All our intermediary team talk to brokers about it as part of our customer proposition.
“We allow pound-for-pound borrowing – so again we look at the existing lending and match the terms on the new borrowing so the customer is not affected by new rules.”
1. Barclays uses transitional rules for existing customers when looking to perform a post-contract variation (PCV), or port the current borrowing to a new property.
2, 4 and 5
The system is automated to identify cases where transitional provisions can be utilised, ensuring these cases are submitted for manual underwriting and not declined upfront.
3. Each customer is manually assessed on a case-by-case basis, and a decision will be reached based on the individual merits of the application. It is because of this that there isn’t a single process for assessment, and therefore no specific lending standards are published.
6 and 7. Speed-to-offer varies subject to the many variables involved specific to each individual.
“We are fully supportive of the Transitional Arrangements. We have only recently entered the broker channel so we expect there to be minimal exposure to requests from pre-April 2014 [from] HSBC existing customers looking to make changes to mortgage products without increasing their lending. We would have had very few, if any, cases progressed by intermediaries which may qualify as Transitional Arrangements given our relatively recent entry into the intermediary market.
“The assessment process of customers who do need to take advantage of the Transitional Arrangements, and the application and timing for draw-down of funds, would be the same as traditional applications.”
“We do use the Transitional Arrangements for existing borrowers. In terms of process, cases can be referred to us pre-application for assessment to ensure the customer qualifies for consideration under the Transitional Arrangements and whether applying them would be in the customer’s best interests. From a broker point of view, cases can be referred directly to us where an adviser can demonstrate that the customer qualifies under Transitional Arrangements and has a rationale to support why this is in the customer’s best interests.”
Yorkshire Building Society/Accord Mortgages
“Since the introduction of the MCD [Mortgage Credit Directive], Transitional Arrangements can now only be applied to existing customers. Our standard underwriting process will identify any cases where transitional rules should be applied, and these applications will be reviewed where appropriate by a senior underwriter. Brokers can talk directly to the underwriter working on any of their cases at any point during the application process. There is no variation in processing times for customers with Transitional Arrangements.”
When asked for specific detail about the process a spokeswoman clarified that the customer would not have to go through the whole standard underwriting process. An underwriter would see that TAs needed to be applied and would flag and refer to a senior underwriter.
Coventry Building Society
“Our systems identify when Transitional Arrangements are required for a mortgage application, whereupon the case is reviewed by an underwriter. A broker can ask us about a client’s situation – whether Transitional Arrangements may be needed or not – by calling our Intermediary Development team on 0800 121 7788. On the timescales point, it currently takes an average of 13 days from receipt of an application to the production of an offer. A non-standard case is likely to take longer to process than a standard one.
When asked how the systems identify when the TAs are what happens once this type of borrower has been identified, a spokeswoman said: “All mortgage applications are subjected to our affordability assessment, the system will flag up applications from an existing borrower that would be declined. These are then referred to an underwriter to be assessed using transitional arrangements.”
2. All customers are assessed in the same way initially. If a customer does not meet our responsible lending checks then we will then consider whether proceeding under transitional arrangements is in the customer’s best interests.
3. We have an ongoing dialogue with our intermediary partners, and they can contact Virgin Money’s nationwide field team of c.70 BDMs who provide application support, product, process and policy information on a daily basis. This is supported by a dedicated telephony team, offering the same level of support to those who prefer to contact us by phone. Collectively, our intermediary support team is responsible for facilitating over 100,000 interactions with our intermediaries each year.
4. Existing customers can transfer to a new product regardless of LTV and affordability, provided it is in their best interests to do so and they are not in arrears.
The products available to existing customers mirror our prevailing front book range available to new customers, demonstrating our desire to ensure we treat all customers fairly, particularly those that may be in a vulnerable position.
Transitional Arrangements apply to existing mortgage customers that have a regulated mortgage contract and want to move house or borrow additional funds for essential repairs yet cannot demonstrate affordability and/or a credible repayment strategy as required under MCOB.
In these circumstances, the customer can take out a new mortgage provided there is no additional borrowing (unless for essential works required to the property) and Virgin Money can demonstrate the loan is in their best interests.
5. This can be identified at any point in the case assessment process – either up front at DIP, or slightly later in the (pre-offer) process should for example income and expenditure verification checks suggest the loan may be unaffordable, or an interest only application does not have a plausible repayment strategy.
6. The current average is approximately 13 days for new business residential applications.
7. There is no difference in the average time taken to process an application assessed under transitional rules versus a conventional assessment.
Yorkshire Bank / Clydesdale
1.We use transitional rules for existing Clydesdale customers where they are switching rate, and there are no further material changes which would impact affordability. We currently do not apply transitional rules to customers that are new to Clydesdale, but may have a mortgage elsewhere.
Yorkshire Bank and Clydesdale Bank declined to comment further on any of the questions.
Skipton Building Society
Skipton’s definition of Transitional Arrangements:
A Transitional Arrangement is: Any mortgage that completed prior to 26/4/2014 and the borrowers are now coming back to us for a:
• new mortgage (like-for-like borrowing) which may fail our new affordability model / policy but fit policy prior to MMR, examples of this are:
• A porting case that does not fit new policy
• A case whereby the loan-to-value is no longer available or has risen
• Product switches, negative equity or transfer subject to equity
1. Yes we do. Full affordability is only applied if we identify material change.
We would always assess affordability and we would manually review in the case of material changes. We would review applicants’ ability to maintain mortgage payments on a case-by-case basis.
2. Transitional rules apply to customers pre-MMR who are returning to us for a new deal, [e.g.] (for essential repairs etc) and don’t have affordability. It is part of the admin process to assess affordability as part of the rate switch process but we would refer issues with affordability back to one of our Skipton direct advisers. This is where we would expect the adviser to assess the applicant’s affordability and ability to maintain the loan payments. It is unlikely that this would come from a broker as the customer would already be with us.
3. If the monthly payment is staying the same or reducing we will not assess affordability.
We would look at cases like this [like] any new lending if this was coming to us from a broker as our transitional rules are for assessing customers already with Skipton and allowing flexibility for our trapped borrowers. For a like-for-like remortgage we would assess affordability as in any other new application.
4. Our systems don’t identify when a borrower requires assessment, we will identify this through assessment or if the customer/broker makes us aware.
These types of cases require manual intervention and underwriting to decide whether approval is appropriate. We would fully document the justifications to support your decision to approve a transitional case subject to demonstrated affordability.
5. There is a manual referral for these types of cases requiring [a] manual underwrite.
6. 12 days.
7. Again, 12 days.
Skipton later provided an additional comment: “It is highly unlikely that this [transitional customer] would come from the intermediary as the case is already with Skipton and we don’t currently pay proc fees on retention. Our rules are to assess the case manually on a case-by-case basis. We need to see evidence of the customer being able to maintain the mortgage payment and apply our usual policy rules which the broker can access on the website. As we treat each case individually there is not a standard exception process for these loans.”
“In line with EU MCD [Mortgage Credit Directive], all applications are subject to a full affordability. If a customer requests that an exception is made based on the Transitional Arrangements, or because it is in their best interests, then the case is reviewed by an underwriter using contract variation criteria and to ensure that the decision is in fact it the customer’s best interests. These cases are treated as an exception and should be flagged by the broker at the outset.”
“We don’t use the Transitional Arrangements.”
Bank of Ireland
“Bank of Ireland UK has not sought to utilise the Transitional Arrangements, but understands the need to treat existing customer requests with fairness, and as such treats each case on its merits. This means the majority of existing customer transactions do not require full affordability checks, for example, product switches do not require a full affordability assessment. Where there is increased risk to the bank, or the customer is requesting a new contract, such as port, further borrowing or name change, the relevant affordability assessment and validation would be undertaken to safeguard both the customer and the bank.”
Ipswich Building Society
1. Yes and we were first lender to use this for existing customers of other lenders prior to it being ceased by MCD regulation.
2.Yes, if this is raised we will work with the broker and their client to assess the case using transitional rules. However, Transitional Arrangements can now only be used by a broker where they are arranging a remortgage for an existing customer.
3. We have a dedicated intermediary sales team and business development manager who liaise with our intermediary network and keep them informed of our lending criteria and how our manual underwriting can assist their clients. We always encourage brokers to pick up the phone and talk through any cases they have which might not be straightforward.
4. We benefit from always applying manual underwriting, using experienced, trained staff to look at each mortgage application. For transitional cases, where the borrower is not exceeding the amount of their initial loan, we do not re-apply affordability checks.
5. Our underwriting team are all trained to identify a borrower who requires an assessment under transitional rules and we have documented procedures for doing so. It is important to note we use transitional rules as the first stage on all existing customer product switches, rather than routing straight to affordability checks.
6. Due to our manual underwriting and the complexity of some cases (such as those with non-standard or multiple sources of income) it is not possible to give a ‘snapshot’ view which is representative of all cases.
We will take the time and effort to understand each case individually and give it the attention it needs.
7. As above.
“We don’t currently use the transitional arrangements for existing customers, we use the responsible lending rules. Where there is an issue with a customer’s affordability they are referred to our underwriters. [For your background guidance, we generally allow a product transfer if it puts the customers in a better position than before so long as certain criteria is met.
“We do not currently use brokers to process product transfer/mortgage review applications for existing customers – given we only launched last January, we’re not in a position where we’re seeing customers who have taken a TSB mortgage through a broker reach the end of their term yet.”
The following lenders declined to comment:
Leeds BS, Co-operative Bank / Platform, Principality Building Society, Aldermore Bank, Kent Reliance and Nottingham Building Society.