The Financial Conduct Authority published its interim report into the mortgage market in May 2018. It found not enough was being done to help people who were “trapped” in high variable rate mortgages.
Many borrowers who initially took out a fixed or preferred rate mortgage (or moved onto one from a variable rate mortgage) automatically revert back to the Lender’s standard variable rate once the fixed or preferred rate period has expired. This rate is usually higher than the rate enjoyed during the fixed or preferred date period.
Even though these borrowers have kept their mortgage payments up to date, if they apply for a new mortgage product with their Lender with a more beneficial rate of interest, some may find they are unable to move because of the Lender’s “affordability” checks. This means that even though they are paying a higher figure at the time and have kept their payments up to date, they are not permitted to move because they fail the “affordability” scoring.
These “affordability” checks do not cater for the situation where a borrower had taken out a fixed or preferential rate mortgage before affordability checks came into force or where their circumstances changed after passing affordability checks.
UK Finance, the body representing Lenders, has indicated that 59 authorised lenders (who make up 93% of the UK mortgage market) have agreed to help borrowers who find themselves in this position. These borrowers will receive a letter from their Lender offering them the opportunity to switch.