When the new MMR rules were introduced last year, the FCA recognised that tougher affordability rules would condemn some borrowers to becoming ‘mortgage prisoners’ by preventing them from remortgaging onto better deals with other lenders.
In order to alleviate this problem, the FCA introduced a set of ‘transitional rules’ allowing lenders to make exceptions to the responsible lending rules, providing there was no increase in the borrower’s outstanding mortgage balance.
A common sense response to a very real problem.
Unfortunately, the new European Mortgage Credit Directive (MCD) which comes into effect in March next year and which is aimed at harmonising regulation across European countries, will bring an end to the transitional rules.
Why? Because the MCD will force lenders to use affordability checks on all remortgage applications – with no exceptions. This means that the window of opportunity for affected borrowers to remortgage under the transitional rules will finally close next March.
This is potentially devastating news for an estimated 770,000 ‘mortgage prisoners’, especially those who have standard variable rate mortgages and are therefore vulnerable to future rate increases, which many experts are predicting may start to happen next spring. If their predictions come true, the timing couldn’t be worse.
The only silver lining to this dark cloud is that lenders such as Saffron have mortgage deals designed specifically for these borrowers. Our Transitional Mortgage, for example, has the following features:
• Rate: 3.99% 5-year discount (the rate then reverts to Saffron’s standard SVR, which is currently 5.39%)
• Max LTV: 75%
• Early Repayment Charge: None
• Arrangement Fee: £995 which can be added to the loan
• Loan size: Min £30K, Max £500K
• Fully portable: Yes
• Transferability: After 3 years, borrowers with a clean payment history can switch to one of Saffron’s current retention deals
• Suitability: Existing mortgage must have been held for 3 years with no additional borrowing or second charges during this period
With a competitive 5-year discount and no early repayment charges, this product provides a great opportunity for borrowers to throw off the shackles of their existing mortgage before it becomes too late to do so.
This is one of those situations where borrowers may not even realise they have a problem, until it’s too late to do anything about it. It therefore makes a lot of sense for brokers to contact potentially affected clients and make them aware of their options.