The Mortgage Market Review
In 2008 the global financial system was on the edge of collapse. High risk lending and borrowing not only threatened the stability of major financial institutions but also caused severe hardship for many individuals.
Due to the widespread effects on the UK mortgage market, the banking regulator conducted a comprehensive review to ensure sustainability and fair practice within the marketplace.
Key changes to mortgage lending
In broad terms, the proposed reforms are designed to promote ‘responsible lending’ and ensure that future borrowers are less likely to take out mortgages they cannot afford.
The Review concluded that lenders are responsible for assessing affordability. This obligation includes examining a borrower’s income. Even in cases where the borrower has chosen to use a mortgage broker, the lender will remain responsible for this assessment.
A significant change to the sale of mortgages will also come into effect, as in the majority of cases, lenders must provide an advised service. Exceptions to this rule include ‘high net worth’ customers, professionals, business borrowers and cases where the transaction is limited to rate switching or amending the terms of repayment. In effect, borrowers will have to “opt out” of a lender advised mortgage sale.
Borrowers will still be able to obtain interest only mortgages, however, this will be limited to cases where there is a viable method of repaying the capital when the mortgage term ends.
The Review also proposes further obligations on lenders to retain their ‘responsible lending’ records for the term of the mortgage as well as utilizing more robust controls on their mortgage contracts.
The majority of these changes will come into effect on 26 April 2014.
What if I already have a mortgage?
There is a danger these well intentioned changes will create problems for borrowers who become trapped by the new reforms. If borrowers do not meet the new stricter lending criteria when remortgaging, there is a risk they cannot remortgage so as to get a better rate.
The regulator says there is some flexibility to allow lenders to make exceptions to the affordability and interest-only rules, so long as they are not increasing the amount of their mortgage. However, for many borrowers this will not be enough. In effect, they may be treated less favourably than other borrowers as they remain trapped in uncompetitive mortgages.
Here at Redress Law, we are experts in dealing with mis-sold mortgage claims. If you believe your mortgage was mis-sold contact us on 0845 869 1409 or use our contact form
