Mortgage watchdogs to investigate unfair rejections

Posted by Amy Flower in Mortgages on 19 October 2015 - Amy is a Senior Credit Analyst at checkmyfile

Concern has been raised that lenders are abusing new mortgage regulations and are refusing mortgages on technicalities, when in fact the applicant could afford the money they have applied for.

The Financial Conduct Authority (FCA) have launched an investigation into the unfair rejections for mortgage applications from certain types of borrowers.

One consistent complaint being made is from existing customers being declined cheaper mortgage deals being told they couldn’t afford the repayments. The declined reasons are usually spurious and the applicants are arguing that they are being made to stay on the more expensive rate, meaning that they have to continue to pay the higher rates rather than make some savings and being switched to the lower amount. It is unclear how the mortgage providers are coming to the conclusions that a cheaper deal, that would reduce a customer’s monthly repayment, is not affordable.

The issue appears to be rising after the implementation of the Mortgage Market Review (MMR) from April 2014, which introduced elements to the mortgage process to make it more stringent and affordable with ‘responsible lending’ ringing out in the background. Some mortgage lenders have been overenthusiastically relying on the emphasis on affordability and preventing switches from an existing deal to another.

Lenders are able to apply discretion and have guidelines they can follow for their customers who are already managing their current mortgage, which makes them exempt from the new affordability tests, but they do not appear to be following them.

This has given rise to the FCA beginning their investigation into why these customers are being unfairly declined, hopefully with the result of more common sense being applied to an application rather than the reliance on a computerised system checking the applicant against an algorithm.

Other areas that are under investigation is for older applicants being declined if the terms of the mortgage takes the applicant into their retirement years, or if the applicant is pregnant but could easily afford the amount they are applying for.

David Hollingworth, of mortgage brokerage London & Country, says, "This investigation by the FCA is absolutely essential because there are people out there, who consider themselves perfectly good borrowers, who are being frozen out of the market because lenders have clamped down so hard”.

It will be a welcome relief for some borrowers who have experienced such difficulties to know that the regulator is investigating the current issues.

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