Banks are forcing 'risky' borrowers into paying higher mortgage rates. Jennifer Jones will have to pay an extra £300 every month
New mortgage rules are pushing some existing borrowers those appearing “riskier” or in some financial difficulty on to the highest rates.
At least that is the claim being made by banks, which are preventing existing customers, even when they do not want to borrow any more money, from having access to their cheaper deals.
The lenders say new rules being introduced by the financial watchdog in April, based around how much borrowers can afford, are tying their hands .
The worst culprit appears to be Santander. Like all lenders it has targeted the least risky borrowers when it comes to offering new loans, seeking customers with large deposits and excellent credit histories. But unlike some rivals it requires “less attractive” existing borrowers to pay higher rates.
In an ironic twist, the Spanish-owned bank appears to be claiming that these borrowers should not move to a cheaper deal because they “can’t afford to”.
In January 2013 Money reported the case of Linden Rowland, an IT consultant whose five-year fixed-rate deal with Santander had just ended, leaving him paying the lender’s 4.74pc variable mortgage rate. Because his income as a self-employed consultant was not especially high, Santander said it would not allow him the cheaper deals it was offering to other customers and to new applicants. As he put it: “The bank is saying I cannot afford to pay considerably less than I have been paying for the last 11 years.” After the intervention of this newspaper, Santander relented and offered him a 2.49pc deal.
Later last year another case emerged of a borrower reaching the end of a two-year, 1.85pc Santander loan in September. Again the borrower was put on to the higher 4.74pc rate causing his repayments to rise from £900 to more than £2,000. He argued that the increase pushed him into difficulties, yet Santander refused him cheaper deals.
An even more recent case involves Jennifer and John Jones, from Sanderstead in Surrey, who are currently on a Santander deal on which they pay Bank Rate (0.5pc) plus 2.19pc, giving a total rate of 2.69pc. Their last payment on that rate is next month, after which they will pay the 4.74pc variable rate, adding almost £300 to their monthly bill.
Mrs Jones is a teacher and her husband works in the mortgage industry giving him an expert’s outlook on how the couple have been treated. His income dipped during the onset of the crisis, and, although the couple did not miss a mortgage payment, they did default on credit card payments, which led to substantial arrears.
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None the less, in 2011 Santander allowed the couple to switch to the deal that is about to end. This time, though, it will not let them switch, even though the Joneses say their credit situation has not deteriorated further.
“Santander’s objective seems to be to make us pay as much as possible,” said Mrs Jones. “We will not get a mortgage elsewhere, so we are trapped. As a result Santander can profit more from us than from borrowers who are in happier circumstances. Santander is making it harder for us to pull ourselves out of this situation or, in the worst case, its policy will force us to sell our home.”
Although the Joneses may not be a good credit risk, they do have a lot of equity in the property some 50pc by their own reckoning. Even if they owned just 30pc, they should still be able to qualify for far lower rates if it were not for their credit history.
Santander said it had an obligation to lend responsibly, based on borrowers’ ability to afford repayments, under the tightening regulations. Specifically regarding the Joneses’ case, it said: “We are aware of Mr Jones’s situation and have been in regular discussion with him.
“Our mortgage rates are based on multiple factors which include the loan to value (LTV), the repayment method, the repayment history and the management of internal and external credit arrangements. Unfortunately in this instance, factors including Mr and Mrs Jones’s external credit arrangements mean the mortgage will remain on the reversion rate, Santander’s standard variable rate.
“We are satisfied that, similar to other lenders, we have a robust and fair system in place that supports our policy of responsible lending. Mr and Mrs (Xetra: MR5.DE - news) Jones are free to look for other rates to remortgage to another lender.”
Not all lenders take the same approach. Nationwide (LSE: CCDS.L - news) , for instance, will not apply credit checks when existing borrowers want to apply for new deals but are not borrowing more. It said: “For product switches with no additional borrowing, we don’t do a credit score or affordability assessment.”
The watchdog, the Financial Conduct Authority, has only broad guidance on the issue. One specific measure, introduced in 2012, aims “to protect existing borrowers who find themselves unable to remortgage (whatever the reason), prevents lenders from taking advantage of the customer’s situation, or treating them less favourably than other similar customers, for example by offering less favourable interest rates or other terms”.
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