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

The Daily Telegraph - Your Money - - FRONT PAGE -

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.

Busi­ness­man Tim Coates is trapped in a mort­gage for his East Sus­sex home

Some banks are re­fus­ing to let home own­ers down­size, above

Many peo­ple are fail­ing to pass len­ders’ ‘af­ford­abil­ity’ tests

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