Building societies are using the tighter lending restrictions of the mortgage market review (MMR) to tie customers into longer-term, more expensive mortgage deals, even when they can afford shorter-term repayments, it has been claimed.
One society offered a 24-year loan to a borrower who could apparently afford repayments on a 13-year mortgage, potentially earning the lender an extra £34,566 in interest.
The claims were made to Financial Adviser newspaper by mortgage brokers, some of whom wanted to remain anonymous for fear of being excluded from the panels of advisers used by lenders.
Under the MMR, lenders and advisers are now obliged by the Financial Conduct Authority to go through applicants' finances in forensic detail, to ensure they can afford to borrow even if mortgage rates rise.
One broker said it was "galling for the client to see five or six years being added to the deal, particularly when their existing mortgage payments are higher than the new payments being proposed".
He said the mortgage market review, which took effect last month, was prompting societies such as Nationwide to approve deals over a longer term, adding: "If the clients are not proactive enough to make overpayments, this practice is going to cost them."
The Building Societies Association said borrowers had to meet the required affordability checks, adding: "There are a range of products available on the market, including the ability to overpay if the borrower chooses."
Nationwide, headed by Graham Beale, reported record profits this week. It said independent surveys and awards showed the society remained "true to its mutual heritage by offering competitive products with long-term member value."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article