The FCA investigate
Following the introduction of the Mortgage Market Review (MMR) last year, the Financial Conduct Authority (FCA) are to carry out investigations into what are considered unfair mortgage rejections. Complaints are arising particularly from older borrowers, women and those with unusual circumstances, that are prevented from remortgaging to obtain lower rates.
The Mortgage Market Review (MMR)
The MMR was introduced in 2014 to prevent another financial crisis. In 2008, lending was careless and defaults caused a collapse of the entire UK financial system.
Lenders must now check borrowers on affordability of mortgage payments, by carrying out in-depth analysis of a person’s lifestyle and spending habits, including whether they could sustain mortgage payments should there be future rate rises.
Acting with discretion
It’s a positive measure to have in place however, lenders also still have the power to act with discretion.
For example, lenders factor into the application, the age of the borrower, particularly in relation to the years left in work. This is to ensure affordability of future mortgage payments from an income source. However, what if that borrower had sufficient means to pay both the interest and capital of the loan despite employment?
A survey published by uSwitch comparison website, showed one in ten women, between age 25 and 45, had faced mortgage discrimination due to an expectation of reduced income from parenting.
Lenders profiting from mortgage prisoners
A known issue with the MMR, is that many regular, reliable customers who qualified for mortgages pre-MMR, don’t now qualify post-MMR, based on affordability checks.
The FCA recognised this and created a number of transitional arrangements for existing borrowers to enable them access to better rates, providing they didn’t need to extend the term or the loan value, however many lenders are fearful that not abiding with the MMR will get them into trouble with the regulators.
There is also a suspicion that certain lenders hold onto these so-called “mortgage prisoners” profiting from them on higher rates, knowing the borrower would struggle to obtain a mortgage elsewhere.
The lack of competition in the market too could be a deriving factor, according to the FCA.
“There are potential areas where competition may not be working well and could be improved.” Christopher Woolard, FCA
The FCA will commence it’s investigations by gathering evidence to see if it needs to intervene further.
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