Mortgages: FAQs
01 April 2010
Mortgages – pricing and charges
Why doesn’t the Government require lenders to pass on cuts in the Bank of England base rate to borrowers, especially where there has been public sector investment in banks?
Decisions concerning the pricing of loans, including the level of interest charged, remain commercial decisions for banks and building societies. The Government does not intervene in these decisions, but is determined that lenders should treat borrowers fairly. As part of this, in late 2008 the Government established the Lending Panel, which brings together lenders, consumer groups, the Government and regulators to drive up best practice in the mortgage market.
For variable rate mortgage customers, where the costs of funding have come down in recent months the Government believes that lenders should pass on the benefits to their customers wherever they can. The Chancellor has met with the CEOs of the major UK lenders to make this clear. Whilst the Government recognises that not all borrowers have felt the benefit of reduced rates, the average mortgage interest rate, as published by the Bank of England, has fallen from 5.54 per cent in November 2008 to 3.67 per cent in January 2010. The Government will continue to encourage lenders to pass on rate cuts to variable rate borrowers.
For customers with fixed rate mortgages, the nature of the product gives certainty around mortgage payments. The Government is not able to intervene where a contract, agreed between lender and borrower, explicitly states that interest rates will be fixed for a given term.
One option open to fixed rate mortgage customers may be to remortgage to take advantage of lower variable rates. Some mortgages may be subject to early repayment charges (ERCs), which lenders charge to cover the costs of early repayment. Customers should receive clear disclosure of any ERCs before they are sold the mortgage. The Government is not able to intervene to reduce or waive these charges.
Borrowers who feel that they have been missold their mortgage (for example, those who did not have the terms of their contract – including rates or charges – properly explained at the time of entering into the arrangement) should in the first instance make a formal complaint to their lender. Customers who feel that their complaint is not satisfactorily dealt with are then able to refer the matter to the Financial Ombudsman Service (FOS) - an independent body set up to provide arbitration in such cases.
The FOS can be contacted via their website (opens in new browser window), or by telephone at 0845 080 1800. FOS decisions are binding on the firm in question, but not on consumers - meaning a complainant retains the recourse to further legal action should they see fit.
Where there is public sector investment in financial institutions, these stakes are managed by UK Financial Investments Limited (UKFI) on the Government’s behalf. UKFI is required to operate at arm’s length from HM Treasury, and manages the public’s stakes in banks on a commercial basis, with the objective of protecting and creating value for the taxpayer as shareholder. This means that even where public money has been made available to banks, the Government is not able to intervene in commercial matters such as pricing or product design. To do so would be contrary to this principle of independence, and may be anti-competitive or distort the market.
Mortgages – availability
I want to purchase my first property or re-mortgage, but I’m struggling to find products that are affordable. What is the Government doing to make competitive products available?
I want to purchase my first property or re-mortgage, but I’m struggling to find products that are affordable. What is the Government doing to make competitive products available?
The Government is taking action to ensure competitively priced mortgages continue to be available to the market and has agreed legally-binding lending commitments with Lloyds Banking Group (LBG) and RBS. During the 12 months from March 2009, LBG exceeded their mortgage lending commitment by £1.4 billion. RBS exceeded their lending commitment by £2.7 billion. For the second year of the lending commitments, which starts in March 2010, LBG have agreed to lend an additional £3 billion to households and RBS have agreed to lend an additional £8 billion to households.
Borrowers should always shop around. The Financial Services Authority (FSA) publishes comparative tables of mortgage rates and terms that can help to point borrowers towards the cheapest products as part of its Money Made Clear initiative. These tables are available from the Money Made Clear website (opens in new browser window).
The Government recognises that many mortgages, especially “special offers” and fixed rate deals, come with arrangement or “booking” fees attached. Like the rates that are charged by lenders, these fees remain commercial decisions and the Government cannot intervene to change them. However, the Government remains committed to making sure that borrowers are treated fairly, and our work through the Lending Panel will help to drive good practice.
First-time buyers may be eligible for the HomeBuy Direct shared equity scheme, launched in September 2008 and offering an equity loan of up to thirty per cent of the value, co-funded by the Government and the developer, free of charge for five years. As with other HomeBuy schemes, any first-time buyers whose household income is under £60,000 will be able to apply. Budget 2009 announced an expansion of HomeBuy Direct as part of a £600 million fund to stimulate housing development in the short-term and boost the capacity in the house building industry. Furthermore, the Pre-Budget Report 2009 announced that the Government would increase the development of HomeBuy Direct homes in 2010-11, delivering an investment of over £150 million in HomeBuy Direct that year.
Further information on Government measures to help homebuyers is available on the Real Help Now website (opens in new browser window).
Mortgages – difficulties meeting payments
I am finding it difficult to meet my mortgage payments, or I think I will struggle in coming months. What help is available?
If homeowners are having trouble paying their mortgage, or are worried about meeting payments in the future, it is vital to make early contact with the lender. In many cases a solution can be found.
Detailed information on the wide range of free practical support and financial assistance available can be found on the DirectGov website (opens in new browser window).
A number of organisations also provide free, impartial advice on money and debt management. These organisations include:
The Government has put in place a comprehensive framework of support for homeowners during these difficult times, aimed at helping people avoid repossession. This includes:
- Strengthening protections in the Courts through the Pre-Action Protocol, making it clear that applying repossession must always be the last resort;
- Extra funding for advice services;
- Support for Mortgage Interest, which helps pensioners and those out of work to meet their mortgage payments. Borrowers can get help 13 weeks after they lose their jobs, whereas previously they had to wait 39 weeks, and the Government has maintained the rate at which help is available at 6.08 per cent despite falls in interest rates
- Putting in place a new Government backed Mortgage Rescue Scheme. This allows eligible borrowers who face losing their home to either sell a share in their home to reduce monthly payments, or sell their home and remain in the property as a tenant paying an affordable rent to a social landlord.
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