I’m taking on the EU Mortgage Credit Directive – it’s going to create many mortgage prisoners

Ensuring people can afford their mortgage is crucial.  Yet the EU Mortgage Credit Directive, which officially starts in March 2016 (but in practice much earlier), will see many being told they “can’t afford a cheaper mortgage”.

This isn’t right, so MoneySavingExpert.com and I are going to make it a campaign priority. I’m not sure how much we can change it, but we’ll try.

Ludicrous lending decisions have already started

The UK Mortgage Market Review, introduced a year ago, included provisions designed to fit within the EU directive. It introduced the mortgage affordability check – designed not just to see if you can afford a mortgage at your current rate, but if rates were 6-7% – a good thing for first-time buyers or those looking to increase their debts.

Yet the same rules apply even for those who are remortgaging – in other words, staying in the same house and not borrowing more, but just switching mortgage deals to try to get a better rate. So, ridiculously, some people are already being told YOU CAN’T AFFORD A CHEAPER DEAL.

Currently, lenders have a transitional right to waive affordability criteria on remortgages where there’s no increase in borrowing. Yet only a few smaller building societies do this, such as Saffron, Ipswich and National Counties – it seems the big ones don’t want to change their systems short-term or too often.

I first wrote about this in my Are affordability rules stopping you remortgaging?  blog last November. Since then, things seem to have got worse, as more and more people report being hurt by these rules.

Here is just a small selection of the scores of tweets I got, having mentioned this issue in my Bag the cheapest ever remortgage briefing in this week’s email:

@Trustaviation: “I failed affordability test for lower value mortgage than the one I had (over) paid for years. Tests clearly inaccurate.”

@Drdannymurphy: “We’ve been denied a cheaper mortgage than our current by afford checks – no debt via mortgage & nil change in circs since last.”

@Gemma1978: “Stuck on a mortgage deal that I can’t change as I’m being told it is not affordable but it is over £100 a month cheaper.”

@Carljones: “We are trying to get a cheaper rate mortgage but keep getting denied ‘as we can’t afford it’ even though we have a high rate.”

@Cryatt: “Tried to remortgage recently. Took time out to go to the bank, was told I don’t qualify, despite being employed and overpaying.”

@bertietwoshoes: “Hi Martin, mortgage broker lenders are being a nightmare with affordability mortgages are getting harder to place!”

@Danahammer: “Failed affordability criteria last August. House worth £200k, mortgage £54k, 8-year term. Criteria said max of £23k!!”

@BN2T4S: “Declined again for remortgage. Lender saying my proof of £50/month on petrol is too low. They will only accept £200! Crazy!!”

Things are about to get worse

The EU’s Mortgage Credit Directive won’t allow lenders to waive affordability checks at all.

As Nigel Farage mentioned the Credit Directive in the MSE Leaders Debate – and I want to make a point to say that from me this isn’t an anti-European tract, as the EU has given us some powerful and strong financial protection for consumers – this simply isn’t fit for purpose for the UK market and must stop.

Of course we don’t know every circumstance that leads lenders to turn down people, and lenders have a right to reject people they don’t want to give mortgages to, but it seems clear something is going wrong here. Take a look at this tweet:

@violalife: “@MartinSLewis – All lenders (but Santander) rejected appl to remortgage on a cheaper deal than I have now. No missed payments, no debt. 60%LTV. “

While those with poor credit scores or a lack of income or equity have always been rejected, this is a different scenario. I’m hearing lenders would like to give the mortgages but won’t because of the affordability criteria they’ve been given.

The ‘what happens if rates rise’ analysis is a slightly strange one for people already on more costly mortgages. To disqualify them from cheaper deals now only increases the likelihood of arrears and repossession later as paying more now makes their finances more fragile for the future.

The one exception allowed

If you’re looking to remortgage with the same lender as currently, then affordability criteria needn’t be applied.

Yet this is rather perverse. Your current lender is the one with the least incentive to cut your cost if you’re on a high rate anyway.

Plus, this flies in the face of a competitive market – we’re denying people access to whole-of-market deals.

What I plan to do

MoneySavingExpert.com will be following this story journalistically and making sure the issue is known about.

Plus, my campaigns team (a highfalutin term for the wonderful ‘MSE Wendy’) and I will be talking to key people on this.

  • The EU commissioner for financial services, Jonathan Hill, has been asking to meet up with me for a general chat for a while. I intend to nail in a date and make this my lead item.
  • I also intend to raise the issue with Martin Wheatley, chief executive of the regulator the FCA, as it now has a unit that wants intelligence to spot market issues.
  • Plus, once we have a new government I intend to meet the Treasury Minister responsible and ensure they’re aware of this. I also suggest it’s something people contact their MP about.

I’m open to other suggestions – I’m not sure this fits a petition – your thoughts are very welcome below.