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Mmr - Mortgage Stumbling Block (Telegraph Article)

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Mortgage chaos for thousands of people moving home

Borrowers who move house this year face unfair penalties and could be forced onto more expensive deals, a Telegraph investigation finds.

Families moving home this year face mortgage penalties and higher interest rates as banks use new rules to "weed out" borrowers on cheap deals, it can be disclosed.

An investigation by The Telegraph found home movers are wrongly being put through new "affordability" tests, in which one wrong answer can lead to a rejection.

To secure the purchase, borrowers who failed the tests were forced to cancel their exiting mortgages, often giving up low interest rates, and pay as much as £15,000 in exit fees.

More than 600,000 people will move house this year and could be forced on to more expensive deals even if the amount they are borrowing is the same or they downsize to a cheaper property.

The over-50s and borrowers whose situations have changed since they took out low-rate deals are most at risk of the being targeted, experts said.

The City watchdog will within months begin an inquiry into whether customers are being poorly treated.

It is understood that regulators from the Financial Conduct Authority could visit banks and demand copies of the paperwork for mortgage rejections.

They will consider whether lenders are exploiting affordability rules introduced in the so-called mortgage market review last year, which was designed to prevent a repeat of the 2008 financial crisis.

Experts said lenders were using the rules either to push out customers they no longer wanted or force borrowers on cheap deals to pay more.

Ray Boulger, of mortgage brokerage John Charcoal, said: "Lenders can't be seen to be discriminating against people on good deals but many are applying a strict set of criteria to all customers and so are able to turn away unprofitable borrowers.

"Banks doing this are acting legally, but the question is whether it is morally right.

"If someone has always maintained their mortgage repayments, stopping them from taking their deal to a new house is illogical and a classic case of unfairness."

Under the mortgage market review, people who apply for mortgages must pass strict affordability tests. They are being asked details of their lifestyle such as how often they dine out or how much they spend on haircuts. They must also prove they could afford the repayments on their loans if interest rates rose.

However, borrowers who are moving home or remortgaging are supposed to be able to do so without undergoing another affordability check.

Yet The Telegraph uncovered dozens of cases where banks were forcing existing borrowers to meet the new criteria.

Typically, those affected were on cheaper loan rates or interest-only deals. Others had started their own businesses, had children or were close to retirement.

Sources at banks admitted that they were keen to move less profitable or "riskier" customers on to more expensive deals, or force them to find another lender.

A number of borrowers who attempted to move a mortgage to a new home said they were unable to transfer "tracker" mortgages, which are linked to Bank of England interest rates and in many cases costs less than 2 per cent.

Simon Pinnington, whose bank HSBC initially refused to transfer his tracker, said: "In our view the reason [we] were declined was that the tracker interest rate was not commercially advantageous to the bank." HSBC said the rejection was a "mistake" after this newspaper questioned the decision.

Rebecca Dewhurst, who was prevented by Santander from transferring her interest-only mortgage, said: "It's crazy, once we move our monthly outgoings will actually fall, but the underwriters said that under the new rules the loan will not be affordable." When contacted Santander said it would reconsider Mrs Dewhurst's case.

A spokesman for the FCA said some lenders were "not applying the [mortgage market review] rules correctly". The regulator said banks were wrong to force customers to undergo affordability checks if they wanted to "port" a mortgage and were not increasing their borrowing or the mortgage term.

The results of its inquiry into the way lenders are implementing the new rules are expected later this year.

The Council of Mortgage Lenders said each bank was free to make its own lending decisions.

nicole.blackmore@telegraph.co.uk

I thought Mr. Boulger worked for John Charcol?

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There doesn't seem to be much evidence. Well they mention dozen of cases but these seem to include older borrowers , someone starting a business and interest only mortgages.

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Is it not morally wrong to not subject them to the same level of scrutiny as everybody else? Besides, these are the ones that created the risk we're trying to avoid.

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I think the banks WANT a crash so they can start lending again at higher volumes than they are today. Or are they happy continually slashing their lending rates as they have been doing over the last 5 years?

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Rebecca Dewhurst on an interest only mortgage paid for by tax credits was gobsmacked to hear that the magic money tree might be on its last legs. GIVE ME SOME MORE FREE FECKING MONEY she screamed OR I'LL GO ON FECKING MUMS NET.

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In other news, lucky Lottery winners demand they should win every week because they are special and better than other people.

For me, sound banks for the entire community is far more important than those people who had the huge fortune to avail themselves of below BoE rate tracker mortgages before the crash in Bank Rate.

Really well put.Absolutely.

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I did say though:

I suspect that lenders are not as unhappy with MMR as your average DM or mumsnet reader is either.

It's not uncommon in business to make a sale you otherwise wouldn't, even at a loss, just to prevent the competition from doing so. Write it off as a marketing expense, because market share is the name of the game.

In fact I daresay they *demanded* MMR so that those they would rather have never lended to are taken out of the market so that they don't have to compete for customers nobody wants except through fear of loosing market share.

They'll be gleefully cleaning up their books now, the game has changed drastically, it was never about keeping house prices high, not as an end unto itself, only about protecting the banks.

Edited by Digsby

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I did say though:

You appear to have been right. They had to maintain market share especially since they were bailed out anyway.

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