Regulator and EU blame each other over 'mortgage prisoner' rules

A war of words has erupted between the EU Commission and the Financial Conduct Authority (FCA), with each saying the other is to blame for people being ridiculously refused the opportunity to remortgage with a cheaper deal as a result of new stricter affordability checks.

In a statement today the EU Commission said: "These stricter tests come from the UK's Mortgage Market Review, not EU legislation." However the FCA insists the checks are "a result of the EU's Mortgage Credit Directive".

Now Martin has called on the Treasury to intervene and sort out the problem before millions of "mortgage prisoners" see their mortgage rates hiked. See MoneySavingExpert.com's Remortgaging guide for tips on when you should remortgage, the different mortgage types and how to get the top deals.

What are the new rules?

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 the current rate, but at rates of 6% or 7%.

These rules included provisions designed to fit within the new EU Mortgage Credit Directive rules which officially start in March 2016, but in practice much earlier.

The EU rules don't allow lenders to waive affordability checks at all, meaning 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.

Currently, lenders have a transitional right to waive affordability criteria on remortgages where there's no increase in borrowing. But this transitional arrangement will end in March 2016.

Ridiculously, this means people are being told they can't afford a cheaper mortgage despite there being no change in their circumstances.

'This will create a huge raft of mortgage prisoners'

Speaking on Radio 5 Live earlier today, Martin said: "Many people are being told they can't afford a cheaper deal – it's an absolute nonsense of the affordability criteria.

"We can't work out whether it's the European Union or the regulator. If you're getting a new mortgage deal, you have to have affordability checks done, something I'm generally in favour of.

"But here's the problem. Unless you're trying to get a remortgage at your existing lender – and of course your existing lender has no vested interest to make a deal cheaper for you – if you're trying to get a new mortgage deal on your existing debt when you're not borrowing anymore and your circumstances haven't changed, you still have to pass the affordability checks.

"Many people are failing these checks and are therefore being told 'you're on 5%, you can't get a 3% mortgage because you can't afford it'. It's self-evident in any logic that it's less risky to have a 3% mortgage than a 5% one.

"We are effectively having a huge raft of mortgage prisoners because of these ridiculous affordability checks. I've spoken to the EU Commission and effectively it's saying it's the regulator in the UK – I've spoken to the regulator who says it's the EU Commission or the Treasury. I can't get a meeting with the Treasury to talk about it.

"What we're about to do is have a mortgage ticking time bomb because of silly affordability rules leaving millions of people on their expensive SVR at a point when interest rates are looking like they might rise in the next year or two.

"This is just bonkers regulation and something needs to be done about it. So someone needs to get everyone in the same room – and that's probably the Treasury – to work out how to stop this crisis before millions are hurt by it."

See Martin's I'm taking on the EU Mortgage Credit Directive, it's going to create many mortgage prisoners blog for more information.

Regulator and EU blame each other over 'mortgage prisoner' rules

'The problem may lie with how the UK's new affordability tests are being applied'

In statement issued today the EU Commission says: "Reports that British homeowners are being prevented from getting a cheaper deal when they re-mortgage are clearly a cause for concern.

"This has been linked to the introduction of the Mortgage Credit Directive, but there is nothing in that directive which should prevent consumers changing their existing mortgage to a cheaper one.

"It seems that the problem may lie with how the UK's new affordability tests are being applied. These stricter tests come from the UK's Mortgage Market Review, not EU legislation. We suggest that those concerned about what's happening take up the issue with mortgage providers or the relevant British authorities."

And what does the FCA say?

An FCA spokesperson says: "An affordability assessment will not be required when a consumer wishes to change a mortgage with their existing lender providing there is no additional borrowing and no other changes to terms likely to affect affordability.

"However, the implementation of the Mortgage Credit Directive (MCD) means that, from 21 March 2016, an affordability assessment will be required if a lender takes on an existing borrower from another lender.

"While an unfortunate consequence of the MCD, it is likely to affect a very small number of borrowers."

MoneySavingExpert.com contacted the Treasury to ask it what, if anything, it would do about this. It told us it would not be providing a statement.