Mortgage holders could be prevented from moving to a cheaper mortgage deal under new EU rules that start to come into force this Autumn.
Therefore as a sensible precaution, it's worth checking you're on the right deal now, or if not, looking at whether you can remortgage soon. See the MSE remortgage guide and remortgage best buys for more help.
The new rules officially come into force in March 2016, but can be enacted earlier, meaning that more people trying to remortgage could be stranded on their expensive SVR (standard variable rate) - the rate most home loans revert to after an introductory period.
In April 2014, the MMR (Mortgage Market Review) introduced 'affordability checks' that scrutinise all of your incomings and outgoings to see if you can repay your mortgage, not just at today’s rate, but at rates of 6% or 7%. These rules were brought in so that mortgage lenders were prepared for the new EU rules that are coming into force next year.
In general, at MoneySavingExpert we're a fan, as they ensure people don't push their finances too far to get a house and then end up repossessed.
Yet MoneySavingExpert founder Martin Lewis has been campaigning about one element of this that is a cause of real concern.
He says: "For a year now I've had tweets from people such as mcrhyshammer, whose cheap remortgage was rejected, because they fail affordability checks - 'Circs hadn't changed. No missed payments. No debts bar new cars. £90k equity. Yet no one'd give us a mortgage.' In other words, ridiculously, people are being told YOU CAN'T AFFORD A CHEAPER DEAL.
"Lenders can currently waive affordability criteria on remortgages where you're not increasing the borrowing, but only a few smaller lenders do.
"I've lobbied against this already, yet soon it gets worse, the new EU 'Mortgage Credit Directive' won't allow lenders to waive affordability checks for those wanting to move to a new mortgage lender - meaning many householders risk becoming mortgage prisoners, locking them in on far higher rates than is necessary. While the EU has given us some good financial protection, this is bonkers and needs reversing."
How much worse is the EU directive than the current situation?
The current regulations were set up to smooth the way for the EU regulations. Yet because of the worry over the remortgaging problem transitional rules were put in place allowing lenders some flexibility. These transitional rules will still be able to be used for those wanting to stay with the same lender, but not for those wanting to move lender, where the cheaper deals may be.
Ray Boulger, senior technical manager at mortgage broker John Charcol, adds: “The new rules are definitely detrimental to consumers. You could argue that this won’t have much of an impact, because in fact most lenders were not applying the transitional arrangements.
“However, a few of the smaller lenders had been using the transitional arrangements, and I am aware of another couple who were planning to. If these EU rules weren’t coming in, maybe a few more would have joined them and we would have ended up with the majority of lenders using the transitional arrangements and helping mortgage prisoners.”
Although the new EU rules do not officially come into force until 21 March 2016, in order to give lenders enough time to get their IT systems and paperwork in order and, most importantly, to avoid any mortgages that are stuck in the pipeline bridging both the old and new rules, it's likely to see things change as soon as September this year.
If you're coming to the end of an existing deal and need to remortgage onto a new one or have already been sitting on your lenders' SVR - and have tight finances - then acting soon is likely to be the safest move.