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Are mortgage affordability rules stopping you getting a cheap remortgage?

Are Mortgage affordability rules stopping you getting a cheap remortgage?

Are Mortgage affordability rules stopping you getting a cheap remortgage?

Over the last year the regulator has introduced stringent affordability rules on mortgage lending. These check all of your incomings and outgoings to see if you can repay not just at today’s rate but at rates of 6% or 7%. The laudable aim is to try and robustly protect you from overcommitting in the event of an interest rate rise.

It’s caused some friction: some are struggling to get deals, others can no longer borrow as much as they want. However, in general I think it’s a sensible move, with one rather large potential hole – and having raised this in passing to concerned senior representatives of the FCA , I told them I’d bash out a blog to see if I could put some more meat on the bones.

So having told you I’m worried there is a problem, let me explain it…

Have affordability rules put the kaibosh on your remortgage?

For those who already have mortgages, right now it is crunch time. Rates for new deals are almost at an all-time low, yet a rise in the UK base rate is getting closer, with most now predicting this will happen in mid to late 2015. So many people are sensibly looking to cut the costs of their existing mortgage deal and lock in a cheap rate now before rates rise. 

However, I’ve heard from a couple of people that they’ve struggled to get remortgage deals due to affordability criteria. To clarify, when I say a remortgage, I’m not taking about borrowing more money, ONLY about borrowing what you currently owe, but on a new cheaper deal. 

If affordability criteria are blocking people from doing that this is a serious problem. After all, it means you are on an expensive mortgage deal and are being told you can’t afford to move to a cheap mortgage deal – nonsense, you can certainly afford to pay less, more than you can afford to pay more. If that is happening, the system is broken.

There is room for lenders to have flexibility, the concern is they’re too scared to use it.

There is flexibility under the affordability rules in the system, but I’m hearing many lenders are struggling to try and incorporate the rules.  We’ve seen an explosion in the length of time new mortgage interviews take, and banks’ systems are nowhere near as efficient as brokers’.  Therefore you can see the attraction of just operating from a standardised rule book

So, have you tried to remortgage to a cheaper deal recently? If so, what was the attitude? Did you find it easy to get accepted? Or did the affordability criteria stop you and are you trapped in your existing deal? Please do let me know using the comments section at the end.

NB. If you’ve very low equity in your property and a very poor credit score, these have always been conditions that stop remortgaging – this is more specifically about affordability

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Green energy is surprisingly unpopular

Green energy is surprisingly unpopular

Green energy is surprisingly unpopular

Last week we launched the MSE Big Winter Switch Event – a collective switch where we’ve used the huge user base of this site to negotiate what are mostly cheaper than the cheapest energy tariffs. While all the deals are hot, by far the hottest compared to its peers is the Green Tariff, yet while the event as a whole has been an enormous success, shockingly few have gone green – even though the differential between doing so and getting the cheapest non-green deal is much narrower than normal.

And this is despite the fact the deal coincides with the BBC leading its news programmes with a report on the increasing threat of global warming on the world’s resources.

The definition of green tariffs is a little tricky – and there are many different shades of green available. Some commit to a proportion of your fuel coming from green sources, others promise that 100% of your energy will be renewable. New proposals by the regulator Ofgem say that green tariffs must offer an environmental benefit over and above just supplying renewable energy – see more info on how we picked the Green Winner.

Before I tell you quite how few people went green, I want to set out the price numbers.

All the prices below are the average for someone with typical usage, paying by direct debit, with dual fuel – there are small regional variations.

It’s worth noting that someone on a standard tariff from one of the big six energy companies would be paying £1,180 a year.

Green Tariffs
MSE Big Switch Event Winner: Green Star Energy Collective Fix:

£1,055/yr

Next cheapest that fits new green criteria:

£1,232/yr

As you can see, normally most people would pay a premium to switch to get a green tariff, here you save substantially compared to a standard tariff, and it’s fixed for one year (do a comparison to find how much it’d cost you).

And it’s also only just over £100 more than the cheapest non-green tariff.  To contrast, here’s our non-green winner (which is also a 12 month fix).

Cheapest Tariffs
MSE Big Switch Event Winner: Eon 12mth Fix: £950/yr + 1,500 Eon points (convertible to 1,500 tesco points)
Next cheapest supplier on open market:

£974/yr

Yet staggeringly, of the many thousands of switchers we’ve had so far in our collective switch, only 0.36% of people who’ve switched have gone green.

I’m really surprised by that. We are MoneySavingExpert, so I wasn’t expecting more than 5% to go for it, but the number that did is far smaller than I expected, especially as the tariff is so competitive.  It seems strange as we often get many users lobbying us to include even more of the cheapest ethical and green choices within our guides than we do (we do it in quite a few already).  Yet in truth, very few people seem to be choosing to go that way.

 

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MoneySaving health warning…

MoneySaving health warning…

You get 20% off at your favourite shop. It's so easy, you feel like doing it again. Before you know it, you're hooked and every element of your financial life is being attacked to cut costs

It starts with something soft. You get 20% off at your favourite shop. It’s so easy, you feel like doing it again, this time perhaps a code-stack or a bit of extreme couponing. Before you know it, you’re hooked and every element of your financial life is being attacked to cut costs – mortgage, credit card, PPI reclaims and more.

I’m afraid recently we’ve had a couple of emails from victims of such a habit, and I felt it was only responsible to publish them to alert others of the potential problem…

Dear MoneySavingExpert,
I am a total convert having taken time to do a financial review. Thanks to your wonderful recommendations and codes, in the last two months I have:

I have also been inspired to change the way I use my money and am encouraging my family and friends to do the same. 

Thank you for the fantastic job you do.

Kind regards,
Gill Acham

And it’s not just women who can catch this bug, the very next day after Gill emailed, we got this – the contagion is spreading…

Hi MoneySavingExpert.com team,
 
Just a huge thank you to you and the team!

  • Today I’ve just ordered a £400 VAX carpet cleaner for £140! (see Vax deals)
  • Earlier this year I made a claim using one of your templates and I received £199.95 compensation from Lufthansa for a late evening flight, three years ago, which was cancelled due to a mechanical problem until the following day. At the time Lufthansa had already paid for the overnight hotel and evening meal (see Flight delay reclaiming)
  • I received payment for wrongly sold Identity Protection Insurance (see CPP reclaiming – though this is now closed)
  • I have changed my gas/electricity deal and saved a substantial sum annually (see Cheap energy club)
  • I have followed your advice re home buildings and contents insurance premiums and what used to be a fairly high four-figure sum (which I had been paying for year-on-year and remaining loyal to the company, the name of which I will not mention) is now down to less than £500 all-in and actually includes some better cover/clauses. (See Cheap home insurance)

Keep up the good work. I’m happy and some of my favourite charities are also happy as I have been able to donate a little more than I normally would have.

Kind regards,
Tony

YOU HAVE BEEN WARNED!

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The real reason why companies offer ‘a month’s free trial’

The real reason why companies offer ‘a month’s free trial’

The real reason why companies offer ‘a month’s free trial’

These days a very common method to build a customer base for service industries, whether it’s Netflix, credit monitoring services or even Graze food boxes, is the ‘month’s free subscription’.  

The obvious reason why companies do this is the apathy dividend – in other words, the hope that they’ll gain as people simply forget to cancel for a month or two. But this is a short-term contributor to profits as there’s actually a more powerful psychology at play here, which I suspect is a bigger win – let’s call it the ‘inertia dividend’.

We human beings are naturally pre-disposed to not liking to lose something that we have. Many people wouldn’t sign up for a movie service that they don’t really need if they had to pay for it, but would for a free month’s trial. They go in with a view to cancelling it when it ends, but at that point they become accustomed to it and now getting rid of it means a loss – and we don’t like loss.

The lust for such things doesn’t bounce back like elastic. We tend to feel the loss of a service far more potently than the joy at its gain in the first place.

An easy example is a salary rise (or cut in mortgage rate). At first you feel happy at the increased disposable income, yet soon that cash is normalised and we’re used to it. Take it away after we’ve adjusted to the new amount and the pain is high.

Just think of the number of people with gym memberships who don’t use them. The idea of losing the opportunity to go to the gym even though they rarely attend keeps them paying month after month. 

This is a dangerous sub-philosophy when it comes to MoneySaving. We have to be clinical and recognise our own biases. It’s important to try and revert your mindset back to where you were when you got it. Ask yourself: "If I didn’t have it, would I pay for it?" If the answer is no then be clinical and ditch it.

After all, if you’re paying for it by the month and you can cancel if you don’t use it, stop using it and then you can choose to sign up again.

I’d love to hear your experiences as to whether you feel you’re tough enough and hard enough to avoid this temptation or whether you’ve been caught by firms’ ‘inertia dividend’ and how much it has cost you.

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Morally bankrupt: Payday lender Smart-Pig’s student targeted ad hides its 1,089% APR – I’m reporting it to the FCA and the ASA


While I was getting the lift to the tube over the weekend, I spotted a payday lender advert on the wall. I always scan these things to see how they try and sell their costly wares, and to check out the APR, but this time I couldn’t see it. I looked at the small print. Nope it wasn’t there – nor was there any mention of cost whatsoever.

So as the lift was about to arrive, I took this snap on my phone…

The Smart-Pig advert I saw

The Smart-Pig advert I saw

I went through to Smart-Pig’s site, which states it’s a 1,089% representative APR (it’s worth noting that even then its slider doesn’t change the APR when you change the borrowing, it’s just a fixed amount).

This is a disgusting practice and shouldn’t be allowed. It is a high cost credit lender targeting the youngest people able to borrow in our society and deliberately ignoring cost. The ad focuses on ease and competitions.

This should be stopped, so I’m going to do my best to stop it (with the help of MSE Wendy and MSE Aileen – my campaigns team). We’re going to formally complain to both the Advertising Standards Authority (ASA) and the financial regulator, the Financial Conduct Authority (FCA). The aim is to get this advert stopped and hopefully to punish Smart-Pig too.

PS. If you see an ad you don’t approve of you can report it to the ASA and the FCA via these links. 

How the ad breaches FCA and ASA rules

Here’s where we believe the ad is wrong (all credit to MSE Aileen for doing the research on this).

We believe it breaches both the ASA’s CAP code and FCA rules and we are going to report it to both authorities on the basis that…

ARGUMENT 1

The advert says:

Win a term’s rent – every customer is entered into our competition to win a term’s rent up to £3500"

The CAP Code says:

Offers of financial products must be set out in a way that allows them to be understood easily by the audience being addressed. Marketers must ensure that they do not take advantage of consumers’ inexperience or credulity." (Section 14.1)

The FCA handbook says:

A financial promotion must include the representative APR if it includes an incentive (including but not limited to gifts, special offers, discounts and rewards) to apply for credit or to enter into an agreement under which credit is provided." (CONC 3.5.7 (1) (b))

This advert is taking advantage of students’ financial situation and is trying to entice them to take a loan with a competition. The lender is clearly using this competition as an incentive for students to apply for one of its loans, so the advert should therefore show the APR, which it doesn’t.

ARGUMENT 2

The advert says:

Trusted by over 20,000 students"

The CAP Code says:

Subjective claims must not mislead the consumer; marketing communications must not imply that expressions of opinion are objective claims." (Section 3.6)

The FCA handbook says:

A firm must ensure that a communication or a financial promotion is clear, fair, and not misleading." (CONC 3.3.1 (1))

And:

Examples of practices that are likely to contravene the clear, fair and not misleading rule include using false or unsubstantiated claims as to the firm’s size or experience or pre-eminence." (CONC 3.3.10 (5))

So what does "trusted" mean? Is this simply the number of students that have taken out one of these loans? If so, the lender should not draw the far-fetched conclusion that every customer trusts it. If there really is an element of trust, so if the lender conducted a survey, what were the results? Where is the source on this ad?

ARGUMENT 3

The advert says:

Manageable limits – borrow up to £350 until your next student loan. Pay back early, extend and even top up your loan."

The CAP Code says:

Marketing communications must not mislead the consumer by omitting material information. They must not mislead by hiding material information or presenting it in an unclear, unintelligible, ambiguous or untimely manner." (Section 3.3)

The FCA handbook says:

A financial promotion must include the representative APR if it includes an incentive (in the form of a statement about the speed or ease of processing, considering or granting an application, or of making funds available) to apply for credit or to enter into an agreement under which credit is provided." (CONC 3.5.7 (1) (c))

The lender is trying to persuade students to take out one of these loans because of the features mentioned in the last sentence. It is suggesting these features are unique to this lender, but in fact any consumer can do this, no matter what loan they take out.

And as the lender has failed to include the representative APR, we believe it’s breached two FCA rules – one where the competition is an incentive, and this incentive where it’s suggesting it’s easy to borrow more.

ARGUMENT 4

The advert says:

We know student money"  "Loans for students"

The CAP Code says:

Marketing communications must be prepared with a sense of responsibility to consumers and to society." (Section 1.3)

The FCA handbook says:

A firm must pay due regard to the interests of its customers and treat them fairly." (PRIN 2.1.1 (6))

The whole advert is aimed at students, persuading them to get further into debt. It’s socially irresponsible for the lender to be targeting students who are already managing so much debt.

The Smart-Pig website

The Smart-Pig website

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