How to avoid a ‘stress test’ when you re­mort­gage

The Daily Telegraph - Your Money - - FRONT PAGE -

whether they will in­crease rates. These brands have been ac­cused of leav­ing bor­row­ers in the lurch. Nick Mor­rey of John Char­col, the mort­gage bro­ker, said: “Lenders that have not an­nounced a change run the risk of not quite look­ing as trans­par­ent as they could be.”

Vir­gin Money and Not­ting­ham Build­ing So­ci­ety both told Tele­graph Money they were still re­view­ing whether to in­crease their mort­gage rates.

Re­mort­gag­ing is ex­pected to in­crease as cus­tomers re­ceive larger monthly bills, but higher rates could make it harder for bor­row­ers to switch. New rules in­tro­duced af­ter the fi­nan­cial cri­sis of 2008 re­quire lenders to “stress test” home­own­ers to en­sure they can af­ford to pay sig­nif­i­cantly higher rates.

These rules are de­signed to en­sure that lend­ing stan­dards re­main high, but they can make it dif­fi­cult for peo­ple to move.

A mort­gage cus­tomer must show that they can af­ford to pay their bills at the in­ter­est rate of­fered by their lender, but also that they could meet the monthly pay­ments if in­ter­est rates were 3 per­cent­age points above the stan­dard vari­able rate. So a cus­tomer who at­tempts to take out a two-year fix from Bar­clays at 1.6pc at Bar­clays is now re­quired to demon­strate that they could af­ford to pay 8.24pc, which is the bank’s SVR of 5.24pc plus 3 per­cent­age points. This means a cus­tomer will be able to bor­row a smaller sum than be­fore the rise.

How­ever, there are ways for cus­tomers to get around these re­stric­tive rules. Home­own­ers who take out a loan fixed for five years or more are not stress tested in the same way, mak­ing it eas­ier to bor­row larger amounts.

Anal­y­sis con­ducted for Tele­graph Money by Anderson Har­ris, a mort­gage bro­ker, said a sin­gle ap­pli­cant with no chil­dren and a £60,000 an­nual in­come would be able to bor­row 6.5pc more by tak­ing out a five-year fix rather than a two-year deal, as this would negate the need for a stress test. How­ever, the higher in­ter­est rates charged on a five-year deal would have to be con­sid­ered.

Mr Mor­rey said lenders were bound by the ar­bi­trary 3 per­cent­age point rule. He added: “Whether this is a good way to stress test mort­gages is a moot point as it is how the Bank of Eng­land has de­creed things to be.” An Aug 25 ar­ti­cle (“No one wants to ad­mit they were fool­ish”) in­cor­rectly stated that The Hever Ho­tel is “in the grounds of Hever Cas­tle”.

As the ar­ti­cle pointed out, but we are happy to clar­ify, Hever Cas­tle Ltd and the Hever Cas­tle Es­tate have no con­nec­tion to The Hever Ho­tel or its as­so­ci­ated in­vest­ment scheme.

We apol­o­gise for any con­fu­sion that may have been caused.

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