The Daily Telegraph - Saturday - Money
Mortgage rates fall for millions – but not all
‘Mortgage prisoners’, who are forced by lenders to pay their highest rates, include well-off homeowners, says Sam Brodbeck
Homeowners trapped on incredibly high mortgage rates who cannot switch elsewhere are generally thought to be high-risk borrowers with little equity in their property and perhaps a history of late payments and arrears. But the population of so-called “mortgage prisoners” also includes borrowers on firmer financial ground.
Tim Coates, 45, has been trapped on Santander’s “standard variable rate” (SVR), currently 4.49pc, for eight years. Millions of other borrowers, meanwhile, are benefiting from rock-bottom rates of as little as 1pc.
In 2007 Mr Coates took out an interest-only mortgage with a 25pc deposit to buy his £620,000 family home in East Sussex. The two-year fixed mortgage matured in 2009 and he was moved on to Santander’s SVR – as usually happens when a special rate ends.
He estimated that he had paid £120,000 in extra mortgage payments as a result of staying on the SVR at a time when the best two-year fixed rates have dipped below 1pc. He pays £1,745 a month.
His suspicion – borne out by many other cases reported in these pages – is that Santander is deliberately seeking to make him pay as much as possible.
“I’ve reapplied every six months and every time they find a different way to refuse me,” he said. “They’ve never once asked about my income.” Mr Coates’s Brighton animation company turns over around £750,000 a year.
Since 2009 he has been refused for a growing and varied list of reasons. These include claims that his equity in the property was too small (he estimates around 40pc); the lack of a suitable repayment plan for clearing the capital sum; and because the firm’s “lending criteria” had changed.
What most annoyed him was being told he hadn’t passed “affordability” tests – because he had never been asked about either his own or his company’s earnings.
The latest reason Santander gave, when Mr Coates asked again to move from an interest-only to a repayment mortgage, was that a fixed-rate loan would be “irresponsible” because of high early redemption charges.
He even offered to pay the entire cost of a two-year fixed mortgage in advance in cash – yet this was refused.
“I’ve tried everything with Santander to see how I can improve my situation,” he said. “I have wanted to change my interest-only mortgage to a capital repayment one for several years but they have said this would have no effect on the interest rate. I have asked how much I would need to reduce the loan for them to consider offering a better deal, to which they said it would make no difference.
“I have no other debts and I do not believe that my loan presents any risk to Santander.”
Mr Coates admits to several late payments, including one within the past year, which have arisen because he set up repayments on a manual basis. Any late payments were made good and there are no arrears on his account.
He has spoken to brokers in the hope of moving to a cheaper deal with a new lender, but has been warned that there is little prospect of being accepted elsewhere. This leaves him at the mercy of Santander’s highest rate indefinitely.
He said: “People in my situation are easy and tempting for the banks to exploit. The more I have learnt about others in a similar situation to mine, the more I believe that this is a deliberate policy in order to profiteer from customers.”
More stringent affordability checks emerged in the wake of the Mortgage Market Review, a set of reforms instigated by the Financial Conduct Authority (FCA).
The City watchdog’s aim was to promote responsible lending after the financial crisis and it included “transitional” measures to ensure existing mortgage customers did not lose out.
They allow lenders to waive affordability checks for customers as
long as they don’t want to borrow more money and there is no “material impact” on their ability to make repayments.
But Ishaan Malhi, chief executive of Trussle, an online mortgage broker, said customers were losing out because lenders were keeping them in the dark over how they assessed risk.
“The group of mortgage prisoners has become more broad over time,” he said. “It’s starting to affect people on higher incomes.”
Telegraph Money has reported extensively on the plight of mortgage prisoners who are perversely told they “cannot afford” a cheaper rate.
Previous coverage has resulted in the FCA clearly stating that lenders are required to apply the transitional measures and treat borrowers fairly.
Santander has cropped up in many of these cases.
In relation to Mr Coates’s case, Santander denied that he was a “mortgage prisoner”.
The bank said that a late payment within the past 12 months meant it could not offer him any alternative rates.
“As a prudent lender and in accordance with industry regulation, when setting interest rates we take into consideration a number of factors which include a customer’s risk profile, their holdings, loan to value and repayment method,” a spokesman said.
“Our mortgage department discussed the request to convert the customer’s mortgage to capital and repayment, but due to Mr Coates’s credit file this would not change the rates available.”
Analysis from Trussle found that the average London homeowner on the average SVR (3.85pc) would be paying an extra £6,600 a year compared with the best rates available (1.14pc) at the same banks.
The Financial Ombudsman Service – which resolves disputes between firms and customers – is currently investigating hundreds of complaints over the “fairness” of SVRs and where borrowers are blocked from switching.
This week Santander came top of the ombudsman’s list of the most complained about mortgage firms.
There were 736 new complaints about the lender in the first half of this year.
A spokesman confirmed that there was a “batch” of around 200 complaints against several lenders, including Santander, focused on the fairness of SVR rates. The ombudsman could not say when these cases would be resolved.