Rules is Rules

Greetings, one and all, and welcome to the height of Summer snapshot of the financial world. By the time this illustrious periodical hits the doormat, we may have endured a prolonged spell of thunder storms (this is England, when all is said and done), but hopefully, we have all been enjoying the best of the season, so far!

In my last article, I mentioned the changes that had been introduced, concerning the treatment of mortgage applications. Now that a couple of months have passed, we have seen a number of illustrations of how much they have affected real people, in their quest to purchase a new home, or re-finance their existing one. Today, I saw a lady, who was in the process of re-mortgaging with her (High Street) bank, in order to raise some capital to pay off her current unsecured credit. Not an uncommon scenario, and given that she understood the concept of swapping to a longer-term low interest rate debt, from one with a potentially shorter term, but considerably higher interest rate, and monthly payment, a sensible move. Due to a minor hitch in the legal paperwork, the bank decided that the application would have to be reviewed, and in the light of the new rules, she no longer qualified for the mortgage that she had previously been offered. It fell outside their revised criteria, and therefore the computer said “no”.

The operation would have saved her hundreds of pounds per month, but now, she finds herself back where she was, with the additional costs of the original application added to her woes. It would have been a relatively straight forward operation, but now it is a borderline case, at best. It is often argued that profligate lending was a contributory factor, in the financial meltdown of the banking system, some years ago. True, in some measure, but the huge majority of the UK mortgage lending was perfectly reasonable, and the greatest “sub-prime lending” problem was in the USA. A greater contributory factor over here was the less heavily regulated personal loan and credit card market, which is still considerably less tightly overseen. Like me, I am sure you still get regular notifications of credit limits being increased, without having asked for them. The interest rates for such borrowing – particularly on credit cards – have been creeping up, so that the financial institutions can bolster up their already fat profits. Before anyone rushes to say that these poor lenders have suffered huge losses, more of these were caused by ill-advised acquisitions of other institutions, regulatory fines, and compensation for the mis-selling of inappropriate or unwanted insurance policies, than by borrowers defaulting. They are, one by one, returning to the massive profits of the good old days.

Another case I have seen recently, was that of a lady who, after a divorce, was advised by her current lender that she could carry on with her existing mortgage arrangement, after her ex-husband had paid a substantial amount off the current loan. When reviewed under the new rules, as she works on a zero hours contract, she was advised that she cannot continue to have a mortgage with her lender. Her maintenance payments, and other benefits, would more than cover her monthly payments – even if she did not work. As her income is not guaranteed, despite it being regular, it was deemed not to be acceptable in the affordability calculations. I hope I will be able to report to you, in due course, that both of these cases have been resolved satisfactorily, but one can never be certain. Hopefully, common sense will prevail!

I’ll sign off now, and will be back in the season of mists, and mellow fruitfulness. Enjoy the rest of the holiday time.

David Foot


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