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Lenders must develop downsizer mortgages

UK property owners who want to reduce their mortgage payments by downsizing are being refused for cheaper loans, essentially trapping them in a house that they are struggling to pay off.

The hardest hit are those who want to pay down their debt and reduce their mortgage payments by transferring the loan to a smaller property. Lenders are subjecting them to the stringent new affordability tests and informing them that the lower repayments are “unaffordable". If these homeowners move to a different lender, they risk being slapped with heavy repayment penalties.

The Financial Conduct Authority tried to prevent this situation when the new affordability rules came into effect in April. The FCA created special transitional arrangements allowing lenders to bypass the new rules for existing borrowers who are not seeking to extend the term of the loan or borrow more money. But many lenders are not doing so.

After repeated press coverage of the situation, the FCA has urged lenders to stop subjecting existing borrowers to the new affordability checks. They are refusing to comply, however, and homeowners are literally paying the price.

Some homeowners who originally took out an interest-only loan to get on the property ladder  are struggling to transfer the loan to a cheaper property, which is being blames on the tough new eligibility rules.

In some cases property owners looking to move are finding buyers for their homes but then failing the new detailed affordability checks as they look to transfer their own loan onto a new home.  Lenders are going as far as asking applicants how much school dinners cost and if children receive pocket money.

Some property owners believe it is a deliberate move by some lenders to trap them into a contract and claim the approach is unethical.


Specialists in Construction Insurance

Downsizing in the UK appears to be complicated on several fronts. One example is retirees looking to move somewhere smaller and free up capital. Some developers say that people who are nearing retirement and want to downsize are being stalled by a shortage of suitable properties.

Unless lenders make mortgages more available to older people, builders can’t justify constructing the homes they need. Barratt homes recently claimed to be disappointed that lender discrimination exists against new build flats: the Royal Bank of Scotland and Nationwide Building Society will only provide a loan to value ratio of up to 75% on new flats, while new houses are eligible for much more.

Critics say that this policy does not align with the with the risk involved in lending on flats and that new build properties are more affordable for borrowers to purchase and live in, given the guarantees on services offered by builders.

Barratt's have also claimed they wish to talk to lenders about how they consider this in order to help the industry build more new properties.


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