Mortgage interest rates have hit record lows of late, and conceivably could go even lower, with bank base rate not expected to move for months to come.
And yet lenders are warning that rates will have to rise, due to interference by our European cousins.
A cross-border mortgage market
For years now, the authorities across Europe have talked of a uniform mortgage market, with shared regulation and rules across the various nations. It’s never been a popular idea with British lenders, who have long been concerned that this is really all about increased integration, with cross-border lending and borrowing.
Proposals on how to promote responsible lending and borrowing were drawn up earlier this year, with two European Parliament committees tasked with reviewing them and publishing their recommendations.
The first committee has now published its report, and it’s got British lenders in an awful flap.
A new direction
According to the Council of Mortgage Lenders (CML) this report is on the radical side, with a number of proposals that appear to protect borrowers, but will instead damage them. Here are some of the main proposals:
- the introduction of a 'cooling-off' period for borrowers of at least 14 working days after a mortgage offer has been made;
- compensation for consumers if credit is rejected because a reference agency supplies an inaccurate report;
- the right for borrowers to make overpayments without penalty, and for them to be able to draw down in the future any overpayments they have made;
- a ban on arrears charges if payment problems arise that are beyond the control of the borrower.
That all seems fairly reasonable, right? So why are the lenders so upset, and so convinced borrowers will lose out as a result?
What the lenders say
The CML reckons that having to observe a cooling-off period would increase both costs and uncertainty for lenders, as they would have to sit on their hands, waiting for the borrower to give the final confirmation.
[SPOTLIGHT]This would also be the result of the proposed changes to arrears handling, lenders say. In addition, higher-risk borrowers could find it more difficult to access mortgage finance, because they will be even less attractive to mortgage lenders if there is a chance they can get out of paying arrears charges.
While many mortgages already offer some form of over or underpayment as standard, it’s certainly not a feature of all mortgages. By introducing it across the board, lenders argue there will be additional costs, and added uncertainty with loans being paid off early.
Overall, the lenders believe that these measures will actually exclude many borrowers from the market altogether, while all customers will face higher costs to cover provisions that will only be used by a very small percentage of borrowers.
My view
I don’t really see the problem with a cooling-off period – buying a property is a huge commitment, so making the right decision on your mortgage is crucial. Having some time to think properly about whether it really is the right deal for you is no bad thing, particularly given how quickly many borrowers have to move in order to secure a mortgage rate.
The arrears charges issue is difficult to call on, as the EU report is vague on what a payment problem that is "beyond the control of the borrower" actually means in practice.
As for the under/overpayments issue, I have a little sympathy for the lenders here, though never having to worry about early repayment charges would make deciding on that mortgage a little easier. There would inevitably be a price to pay for this added flexibility though, in the form of higher interest rates.
European meddling
It’s easy to view the lender reaction to the report as a touch melodramatic. But , despite my reservations, I do feel they have a point.
I’m no Europhobe, but I don’t really see how realistic or desirable the idea of an integrated European mortgage market is. The fact is that the way we view property, and the way we buy it, varies sharply across the continent, and trying to force a ‘one size fits all’ approach is a recipe for disaster.
Besides, it’s difficult enough at the moment to get a mortgage in the UK, with approval levels falling yet again in July. The housing market has already ground to a standstill, so anything which makes mortgages more expensive, and harder to get hold of, is not particularly welcome.
What do you think? Do these changes sound sensible to you? And would it be worth paying more for your mortgage for them? Let us know using the comments box below!