Thousands are being told they can no longer transfer their mortgage when they move, and lenders are profiting.
Mortgage lenders are incorrectly using new rules to deny borrowers a valuable feature of their mortgage contract that allows them to keep their loan when they move house.
Millions of borrowers have contracts that allow their loan to be moved, or “ported”. But lenders are trapping many in their homes because they do not meet strict new affordability criteria, introduced in April.
Even those who do not want to increase the size or length of their loan, and those whose circumstances or earnings have not changed, are being rejected. Telegraph Money has even seen cases where older borrowers who want to downsize and move to a cheaper property are being turned down.
The only way out is to pay off the loan early, which can attract a hefty penalty, and move to a new lender.
Brokers say some lenders are taking advantage of the new affordability rules as a way to move borrowers off very cheap rates or interest-only loans. Others are simply applying the rules in the wrong way.
The “porting” clause
Most mortgages were promoted and sold as portable. This appealed to borrowers who knew they would need to up or downsize in the future or who wanted flexibility to move. Lenders’ terms and conditions did state that borrowers would have to meet affordability requirements at the time they wanted to move. However, brokers say these checks are now far tougher than when the loans were taken out.
The affordability rules
Tough new rules require lenders to assess borrowers’ incomes and spending habits in great detail to ensure they can afford a loan, both now and when interest rates rise.
The changes were made to end some of the irresponsible lending practices of the past, not to make life harder for existing borrowers. The regulator, the Financial Conduct Authority (FCA), introduced transitional rules to protect existing borrowers who were unable to meet the new affordability requirements.
The special provisions allow lenders to choose not to apply the new rules to existing customers provided that they do not want to borrow more money or extend the loan term. But some are ignoring these provisions.