Home lending rules look set to change to help mortgage prisoners

Mortgage customers who have previously been unable to switch to a better deal despite being up to date with their payments, commonly known as mortgage prisoners, could soon be able to do so.

The Financial Conduct Authority (FCA) has proposed changes to how lenders assess whether or not a customer can afford the loan in a report into its Mortgages Market Study which have been widely welcomed by the home lending industry.

It says that while the mortgage market is working well in many respects, it falls short of the FCA’s vision in some specific ways and it has set out how new lending rules can be designed to help the market work better.

It is seeking to speed up more widespread participation by lenders in innovative tools to help customers more easily identify what mortgages they qualify for and is proposing that the Single Financial Guidance Body (SFGB) extends its existing retirement adviser directory, currently under the Money Advice Service brand, to include mortgage intermediaries to help customers make a more informed choice of broker.

A consultation will be launched in the spring on proposals to change mortgage advice rules and guidance to help remove potential barriers to innovation and there will be further, in-depth analysis to understand more about those customers that do not switch mortgage to inform any necessary intervention.

‘The market is working well for many with high levels of customer engagement and competition. The package of remedies we are taking forward will benefit consumers by encouraging innovation and making it easier for them to find the right mortgage,’ said Christopher Woolard, executive director of strategy and competition at the FCA.

‘We are particularly concerned about consumers who are commonly referred to as mortgage prisoners who are currently unable to switch. That is why we are acting now to help remove potential barriers in our rules. These changes should make it easier for consumers to get a more affordable mortgage,’ he added.

The FCA has proposed that, for those customers who are up to date with their mortgage payments, and seeking to move to a more affordable deal without borrowing more, active lenders will be able to undertake a more proportionate assessment of whether they can afford the new loan.

The FCA is particularly concerned about customers of inactive lenders and entities not authorised for mortgage lending as they are unable to move to a new deal with their existing lender. To ensure these customers are made aware of this change, inactive lenders and administrators of entities not authorised for mortgage lending will be required to review their customer books to identify and contact eligible customers.

Jackie Bennett, director of mortgages at industry body UK Finance, said that lenders have been working closely with the regulator, responding to the challenge of mortgage prisoners with a voluntary industry-wide agreement which has already seen firms contact over 26,000 customers.

‘The regulator’s offer of more flexibility around affordability testing is encouraging. This will help those customers who are up to date with payments or who are not looking to borrow more. Requiring inactive lenders and administrators of entities not authorised for mortgage lending to review their existing customer books to identify and contact eligible customers is a positive step,’ she explained.

‘However, even under these proposals, there are thousands more customers with inactive lenders or unregulated owners that the regulated industry would be unable to help. We therefore call on the Government to work with the FCA to ensure that all customers, regardless of owner, have full regulatory protections to ensure they are treated fairly,’ she added.

Kate Davies, executive director of Intermediary Mortgage Lenders Association (IMLA), also welcomed the report and said the industry is encouraged by the FCA’s view that a market solution is the best way of helping consumers to find the right mortgage.

‘There is currently considerable activity in the market to develop new ways of delivering this, and whilst some of these have yet to prove their effectiveness, we believe that competition and innovation is best driven proactively by the market, rather than reactively in response to regulatory intervention,’ she pointed out.

‘Whilst there is scope for giving consumers more information on which to base their choices, a balance must be struck between what it is possible to provide and what is likely to be helpful to consumers,’ she added.

Martin Lewis, founder of MoneySavingExpert.com, which has been calling for change for over four years, said he is pleased that there is recognition that while there needs to be affordability tests, reform is needed.

‘In a nutshell the FCA is supporting our proposals. It is suggesting that the affordability test be changed so that as long as you’ve been meeting your mortgage repayments for a year, then provided the new deal you’re applying for is cheaper, in other words, it has lower interest, and the repayments are lower, then you will be deemed to have passed the affordability test,’ he explained.

‘We hope this proposal is enacted. It will still need lenders to play ball, but I’m hopeful that will happen, because they’ve often told us they find the current rules frustrating too. We need to make sure those with existing debts can engage with a competitive market, releasing the pressure valve on their finances. If we get this right it’s a triple win: it’s better for the individual, the economy and lenders,’ he added.



27th March 2019


Property market defies Brexit with 5.9% surge: House prices jump by the highest monthly rate ever – but experts say it’s down to a shortage of homes

  • February’s house price growth of 5.9% was highest since records began in 1983
  • Prices also grew year-on-year and over the preceding quarter of Sep – Nov
  • One mortgage broker said the data underlined the lack of homes on the market


PUBLISHED: 10:39, 7 March 2019 | UPDATED: 10:39, 7 March 2019

The British property market has defied worries over Brexit with house prices surging by their highest ever monthly rate in February, according to the latest data.

More than reversing a nearly 3 per cent fall in January, the latest Halifax house price index found that prices spiked a record high 5.9 per cent last month.

Halifax’s index also shows that prices in the three months to February were 2.8 per cent higher than the same three months a year earlier, and that prices were 1.8 per cent higher than the preceding three months of September to November.

The figure questions the narrative that has emerged over the last year of Brexit strangling the property market, as both buyers and sellers delay decisions. However, experts warned that the price could just be a symptom of the shortage of homes on the market.

Russell Galley, Halifax’s managing director, said: ‘The shortage of houses for sale will certainly be playing a role in supporting prices.

‘People are still facing challenges in raising a deposit which means we continue to expect subdued price growth for the time being. However, the number of sales in January was right on the five-year average and, at over 100,000 for the fifth consecutive month, the overall resilience of the market is still evident.’

The lender had previously said that house prices had seen ‘next to no movement’ in response to last month’s figures that found prices in January grew by just 0.8 per cent year-on-year.

According to the Halifax index, the average house price now sits at £236,800, marking the third time in the last seven months that prices had risen.

Halifax’s managing director had previously predicted potential growth of up to 4 per cent in 2019 after a better than expected December which saw prices rise by 2.5 per cent.


February’s house price growth of 5.9% was the highest since records began in 1983, and reversed a surprising fall of 2.5% in January

He then revised that opinion in last month’s index, saying he expected growth ‘to remain subdued in the near-term.’

Rival lender Nationwide found in its own index at the end of January that prices inched up just 0.1 per cent in the year to January 2019.


Different data from HMRC also showed January was the fifth consecutive month of more than 100,000 home sales, with 101,170 being sold.

One mortgage broker echoed Galley’s words on the shortage of homes being primarily responsible. Andrew Montlake, director of Coreco, said: ‘What the February data underlines is that the lack of homes on the market, and broader supply deficit, have the potential to mitigate the impact of Brexit on house prices.

‘There’s all manner of political uncertainty at present but when it comes to house prices, the lack of supply could prove the property market’s trump card. Sellers should not see this as a pretext to raise their prices, however. One month does not a market make.

‘Despite the sharp monthly rise, this is still very much a buyers’ market. Sellers need to be realistic if they want to sell and the majority now accept that.’

Pete Mugleston, managing director of Online Mortgage Advisor, said: ‘The annual, quarterly and monthly growth of house prices announced by Halifax this morning, is likely a result of the increasing numbers of first time buyers on the market.

‘In fact, we’ve seen a 54.6 per cent uplift in mortgage enquiries, in line with the yesterday’s UK Finance data that also showed new homeowners are at an all-time high.

This spells really positive news for the housing industry as market activity is set to increase even in light of the current political landscape.’

Jonathan Hopper, managing director of Garrington Property Finders, said: ‘It’s too early to tell if this is a bounce or a blip. But such a dramatic resurgence in house prices should galvanise a property market that talked itself into stagnation in January.

‘The huge swing in the monthly rate of price change tells us only two things – how volatile this measure is and how weak January’s reading was. February’s rapid correction, welcome though it is, shouldn’t be seen as an omen of things to come.

‘Better clues lie in the monthly and quarterly growth rates, which have returned to type – steady and sustainable rather than stellar.

‘It is resolutely a buyers’ market. Many of the homes that came onto the market since the start of the year have been priced more realistically, and strategic investors are able to capitalise on softer prices and seller uncertainty to secure big discounts.’


PUBLISHED: 10:39, 7 March 2019 | UPDATED: 10:39, 7 March 2019




Seven ways to get your child a first home

Parents reveal some of the new ways to get your kids on the property ladder (and you could end up quids in)

  • Almost one in four first-time buyers now turn to the ‘Bank of Mum and Dad’ 
  • 30-year-olds whose parents have no property are 60%  less likely to own a home
  • You can give all or part of a deposit to a buyer as a, tax-free, non-returnable gift 
  • If you cannot afford to give a deposit away, you can lend it — on your own terms 


PUBLISHED: 22:38, 5 March 2019 | UPDATED: 09:57, 6 March 2019

It has never been harder to get a foot on the housing ladder. House prices are now nearly eight times the average wage, and they have been rising faster than most can save.

Almost one in four first-time buyers are now turning to the ‘Bank of Mum and Dad’, figures from Aldermore Bank show.

And 30-year-olds whose parents have no property wealth are 60 per cent less likely to be homeowners, according to the Resolution Foundation.

But if you can’t hand over a hefty deposit to your loved ones, you could still lend a hand.

Last week we explained how you can aid them in preparing potential first-time buyers’ finances to get mortgage-fit in two years. Here, we explore other ways to help them get the keys to their first home…

How to give money away for a deposit

Family or friends can give all — or a chunk — of a deposit to the buyer as a simple, tax-free, non-returnable gift.

Simply handing over a deposit is the most common way parents help their children onto the ladder, and this is where the term ‘Bank of Mum and Dad’ originates.

Legal & General figures show the Bank of Mum and Dad gave close to £5.7 billion in 2018.

Alongside savings accounts for first-time buyers such as Help to Buy and Lifetime Isa’s, a gifted deposit can top up any shortfall.

But this may be an option only for wealthy parents who have money they won’t need in retirement if they intend to give all their loved ones an equal deposit

Vicky Bradley, a product manager at Skipton Building Society, had saved £9,000 for a deposit when she fell in love with a £125,000 two-bed terraced house in Keighley, West Yorkshire.

Her parents, Bob and Linda Bradley, offered to help cover the 10 per cent deposit and fees.

‘They agreed to an informal loan of £3,000, but then told me it was really a gift,’ says Vicky. ‘It was such a lovely surprise and allowed me to arrange a mortgage straight away.’

Gifted money could be subject to inheritance tax.

For gifts above your annual allowance of £3,000, you must live longer than seven years from the date you gave the money away to avoid the risk of an inheritance tax liability on your donation.

A gifted deposit can also prompt questions over who gets the money back if a couple splits and their house is sold.

A solicitor can draw up a legal document such as a Declaration of Trust to note which buyer the gift was given to, and the share of the property to which they are entitled.

…and how to get money back if you lend it

If you cannot afford to give a deposit away, then you can lend it — on your own terms.

A loan lets you keep some control by specifying when you need the cash back. It may be exempt from inheritance tax but the rules are complex, so check with a tax expert first.

A solicitor is needed to draw up the terms and, just like with a mortgage, the parents would register a charge on the property deeds to ensure the loan is paid back.

The charge on the deeds would specify that on the sale of the property, or when it is remortgaged, the money lent is repaid.

A drawback for the parents, however, is that they are also required to stick to the terms and cannot readily access their cash.

Only a handful of lenders accept a parental loan as a deposit, and those that do take monthly repayments into account — which could restrict the amount your child can borrow.

Lend your name to the mortgage

First-time buyers can now add their parents to the mortgage application while keeping Mum and Dad’s names off the deeds.

A ‘joint borrower, sole proprietor’ deal allows the buyer to apply for a home loan using their parents’ income. Adding family members to the mortgage, but not the property, has grown in popularity.

Lenders prefer this over a traditional guarantor deal, where parents are vetted separately to make sure they can make payments in case the children default on the loan.

After Virgin Money withdrew its guarantor mortgage last year due to a lack of demand, only a handful of lenders, including Hinckley & Rugby, Cambridge and Market Harborough building societies, will still consider this type of deal.

Instead, around 20 lenders offer the new joint borrower arrangement — double that available ten years ago.

High Street banks such as Barclays, Metro, and Clydesdale offer a mortgage on these terms, along with building societies such as Newcastle, Hinckley & Rugby and Buckinghamshire. Interest rates are typically the same as with a regular mortgage.

The cheapest five-year fix available is 2.34 per cent with Barclays for borrowers with a 10 per cent deposit. On a mortgage of £150,000, the monthly repayments would be £661. Over five years, the total cost of the mortgage, including a £999 fee, would be £40,659.

The length of the mortgage offered will depend on the age of the oldest borrower.

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: ‘This type of deal helps with the affordability of the mortgage but not the deposit.

It also ensures the child qualifies for first-time buyer stamp duty exemptions, while the parents sidestep the additional 3 per cent stamp duty surcharge for purchasing a second home.’

And by not owning a share of the first-time buyer’s home, parents can also avoid paying capital gains tax on any increase in the value of the house when it is sold.

But Mr Harris warns: ‘Anyone named on the mortgage is jointly responsible for making payments. It could also damage their credit rating if repayments are not maintained, and affect the parents’ ability to take out further debt in the future.’

Former garage owner Carl Bojen, 65, used the Family Springboard mortgage to help his granddaughter Toni Thornton, 28, buy her first home nearby in Grimsby, Lincolnshire, with partner Kane Ramsey and their son Ronny, three.

‘I want to help all my grandchildren buy their own homes, but it would break me to give all six of them a deposit,’ Carl says.

Carl and his wife Linda, 65, put £13,200 of their savings — 10 per cent of the £132,000 purchase price — into a Barclays savings account attached to the mortgage. After three years Carl and Linda will get their money back with interest, ready to help their next grandchild.

Without help, Toni, who works in telephone sales, and electrician Kane would have had to save for another three years.

Do a savings swap to help buyers with a deposit

Among specialist offers aimed at families is a 100 per cent mortgage tied to a savings account.

This allows first-time buyers to buy a house without a deposit on the condition that a family member deposits money in an attached savings account for a fixed period.

The Barclays Family Springboard and Lloyds Lend A Hand mortgages require 10 per cent of the value of the house to be locked away in a fixed-interest savings account for three years.

Although your money is tucked away and you cannot access it in an emergency, you will get it back, along with interest, when the term ends.

Lloyds pays 2.5 per cent on savings, and Barclays currently pays 2.25 per cent — its rate is set 1.5 per cent above the Bank of England base rate.

David Hollingworth, of mortgage broker L&C, says: ‘This could help parents or grandparents who are not in a position to give money away, or have a large family and need to share their wealth around.’

But for the first-time buyer, it may mean they have to stay in the property until its value increases enough to give them a substantial deposit in order to take the next step on the housing ladder.

If the house price falls, they could find themselves in negative equity. If mortgage payments are missed, banks may hold on to the money for longer until they are cleared or, depending on the lender, use some of the money to clear any debts.

Get a charge put on your home

Another option for families is, instead of offering cash as a deposit, parents can allow the bank to put a charge — like a mortgage — on their home for the equivalent amount.

The value of that charge could be, for example, 20 to 25 per cent of the value of the first-time buyer’s house. It remains on the property for around 10 years.

It can be reviewed before then, and if there is enough equity built up in the home, it can be removed early.

Aldermore Bank and Family Building Society are two lenders that offer these types of mortgages. Family BS requires the first-time buyer to contribute 5 per cent of the deposit.

It could suit parents who have lots of property wealth and do not plan to move house.

If parents want to move, particularly in the short term, there must be enough equity in their new home to still provide the same guarantee.

There is also the risk that they could lose their home if their child or grandchild’s house is repossessed and there is not enough money to repay the loan.

Use a family offset mortgage

Families can also use a savings account to slash the interest a first-time buyer pays on their mortgage.

A family offset mortgage is similar to the savings and mortgage account option, but instead of getting interest on the money in the account, it is used to reduce the mortgage cost.

Parents will get their money back after a fixed period. This is usually ten years, but it can reviewed earlier — for example, when the borrower’s fixed rate comes to an end.

The drawback is that the money is locked away for a period and will not earn interest for the parents. It could also be eroded by inflation.

If the house is repossessed or sold for less than the loan amount due, savings in the offset account can also be used to foot the shortfall.

But in a low interest rate environment, savers may prefer to forego earning a small amount of interest in favour of helping their children pay less towards their monthly mortgage payments.

Kim and Alison Wilkinson, both 60, from Surrey, used a Family Building Society offset mortgage to help their daughter Sarah, 26, buy a £260,000 three-bedroom terraced home in Portsmouth, Hampshire.

The couple had built up savings but did not need to use them in the short term. Earning next to no interest in a savings account, they decided to put the money to better use.

Secondary school teacher Sarah’s mortgage with Family BS was fixed for five years at 2.89 per cent.

‘Mum and Dad wanted their money to work as hard as possible,’ says Sarah. ‘By putting it in the offset account, it effectively earned 2.89 per cent.’

While she could afford the monthly repayments without her parents’ help, she says: ‘This reduced my mortgage payment from around £750 to £550, which gave me more disposable income to furnish the house and enjoy treats such as holidays, which I may not have been able to do as a first-time buyer.’

Cash in on your own home

Income-poor older homeowners with plenty of property wealth could unlock their home’s equity to help.

Equity release is available to borrowers aged 55 or over. It allows homeowners to gift their property wealth now, instead of waiting until they die and their house is sold.

In the first half of 2018, close to 20 per cent of borrowers taking out equity release used the money to help family, according to Canada Life.

The only has to be repaid only when the homeowner dies or moves into long-term care. There are also options that allow borrowers to pay the monthly interest if they want to reduce the cost of the overall loan.

This can also reduce your inheritance tax liability, as the value of the equity release loan will be deducted from the overall estate when the inheritance tax bill is calculated.

Rates on equity release mortgages are higher than traditional mortgages. The average interest rate is 5.24 per cent, compared to the average two-year fixed rate of 2.49 per cent on a traditional mortgage.

Interest is also rolled up and added to the loan monthly, which can double the debt every 14 years.

Parents or grandparents should seek legal advice before entering into a family mortgage arrangement.