Fears for property market as lenders restrict mortgage mobility

Borrowers are increasingly finding that their requests to transfer mortgages when they move are being refused by lenders, sparking fears among property experts that the market is set to slow further.

Tight lenders

The mortgage market is in real danger of stagnating because of lenders' restrictive affordability requirements and their desire to get rid of unprofitable business.

Homebuyers are finding it increasingly difficult to ‘port’ their mortgages to new properties as banks and building societies tighten their lending criteria. In some cases the requirements are so tight that homeowners just give up trying to move, which means that the market is in serious danger of stagnating.

Some of the worst hit are those homebuyers on interest-only deals and older borrowers, many of whom do not want to increase the size of their mortgages, but are being refused permission to transfer an existing mortgage to a new home on the grounds that the loan, which they have often been paying for years, is no longer ‘affordable’.

Age restrictions

'Most lenders will not lend more than 75% on an interest-only basis. But we have had clients who wanted much lower loans to value – in some cases less than 50% – with no increase in the amount borrowed and they still failed to qualify to port their mortgage to a new property,' said Ray Boulger of mortgage broker John Charcol. ‘We have had clients just decide to stay put.’

The number of interest-only deals on offer has reduced dramatically as the regulator considers this risky lending. Boulger points out that those offering interest-only deals, now calculate affordability based on the higher repayment costs, and will only lend to age 65.

This means that many people over the age of 45 cannot meet the affordability criteria because repayments are calculated over a relatively short term and are therefore higher. A 50 year-old wanting to move house will be assessed for affordability on a repayment loan over 15 years, not 25, which significantly increases the monthly costs and will prevent many from moving house.

'For anybody over the age of 45 it starts to be an issue,' he said. Given that many people do not even buy their first property until they are in their mid to late 30s and that we will soon all have to consider working until age 70, these age restrictions are likely to become increasingly onerous.

Porting complaints

In its recent annual report, the Financial Ombudsman Service (FOS) reported an increase in the incidence of complaints about ‘porting’ mortgages. Many homebuyers assume that if their mortgage is portable, they will automatically be able to switch it to a new property when they want to move house.

This is not the case. Lenders reserve the right to ‘underwrite’ the loan again and are imposing increasingly tough criteria when people want to move house. In some cases lenders are insisting that borrowers whose income has not changed can no longer afford mortgages that they already have.

Inevitably, it raises the question as to whether these tougher conditions are aimed at getting rid of customers on low rate mortgages that are unprofitable for lenders. Before the credit crunch it was possible to sign up for tracker loans at sub-base rate levels or 1% above UK base rate. Some were lifetime trackers. Clearly borrowers do not want to give up these cheap loans. Equally lenders want them to take their business elsewhere so that they can lend the money more profitably.

The FOS’ recently published annual review for the year to 31 March, reveals that the ombudsman has seen an increase in the number of complaints from consumers whose applications to transfer mortgages have been turned down.