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Published on March 19th, 2015 | by Pete

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Don’t get caught on a more expensive mortgage rate!

Paying a mortgage is usually the largest financial commitment we make. It’s often a substantial percentage of our monthly outgoings and therefore ensuring you get the best mortgage rate possible for your circumstances is important.

Comparing rates when looking to remortgage or buy a new property is a vital part of getting the right mortgage for you. However, changes in mortgage rules last year have made it harder for some borrowers to get hold of the mortgage deal they want.

In April last year, the Mortgage Market Review was introduced. It brought in tougher new affordability checks that all lenders have to use to ensure their mortgages are truly affordable for borrowers. These tougher rules have impacted many existing mortgage holders whose mortgage deal is coming to an end. These borrowers have held a mortgage for many years, but now find they cannot pass the new affordability criteria. Often the self employed and older borrowers find it hard to get a new mortgage deal. These are becoming known as mortgage misfits. See infographic below.

Sometimes borrowers are left on their mortgage lender’s standard variable rate, which is sometimes at a higher rate than they paid before. These are called ‘mortgage prisoners’ and can be borrowers who have always paid their mortgage on time and have a good credit score. Their lender evaluates them for affordability using the new checks and if this fails refuses them a new mortgage deal, instead leaving the borrower on their standard variable rate.

This is despite the Mortgage Market Review rules also including a process for lenders to use for existing borrowers who fail affordability called ‘transitional arrangements’. Borrowers who have held a mortgage since before the 26 April, do not wish to extend their mortgage amount and have always paid their mortgage can be considered under these transitional arrangements. This effectively removes the affordability rules, as long as the lender can clearly see the mortgage is affordable in that specific, individual case and the loan is in the best interests of the customer.

Not all lenders offer transitional arrangements to all borrowers who fail affordability. Many offer this to existing lenders, but very few are happy to consider all borrowers. Larger lenders that use automated processes may struggle to implement transitional arrangements, whereas smaller lenders who use people to evaluate mortgage applications have greater flexibility to consider transitional cases.

Lenders such as Ipswich Building Society are happy to use transitional arrangements, and welcome mortgage misfits. They will consider applications from borrowers who fail affordability, even if their existing or other lenders have refused them.

YOUR HOME MAY BE REPOSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS

Ipswich Building Society has been championing the cause of ‘mortgage misfits’ and recently announced a new programme of mortgage lending for borrowers who have been let down by other lenders as a result of the stricter affordability rules imposed in April 2014.

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