EU rule could cost mortgage borrowers thousands

european union flag with the uk ...
european union flag with the uk ...

The EU is has drawn up new rules that could push up the cost of a mortgage in the UK - and stop thousands of people being able to remortgage to a better deal.

The Mortgage Credit Directive is intended to protect borrowers, by stopping them from taking mortgages on that they will not be able to afford. When it comes into effect in March next year, it will introduce affordability tests, which are intended to ensure that no matter what is thrown at them, homeowners will be able to maintain their mortgage repayments.

The problem is that in the UK, borrowers already have to go through these tests when they borrow for the first time. The new rule will mean they also have to do so when they remortgage - unless they remortgage with the same lender - and it's arguable whether that's helpful.

If someone wants to remortgage to a cheaper deal, you have to ask why they should have to prove that they can afford something that's cheaper than the payment they've been successfully paying for years. It begs the question of whether their track record ought to speak for itself.

Certainly the government is unconvinced. In its consultation on implementing the directive it said: "The UK government does not believe that the MCD offers many benefits to UK consumers beyond those already provided by the high level of protection offered by the existing FCA regime for mortgages. However, it does add a number of costs to UK industry."

The Building Societies Association agrees, adding: "It adds no additional benefit to UK consumers and risks adding cost and complexity to the mortgage application process."


Ray Boulger, an expert with brokers Jon Charcol told The Times that not only is it more expensive for the industry, but it will cause problems for some buyers too - and could make their mortgage much pricier.

Those who are affected will be those who are remortgaging, who will have to go through new strict affordability tests. If they fail these, they will not be able to remortgage with any firm other than their current lender.

This means they will not be able to access the cheapest deals on the market - many of which are only available to new customers. Boulger calculated that this could cost someone with a £250,000 mortgage more than £2,500 over the next two years.

The Association of Mortgage Intermediaries chief executive Robert Sinclair told Mortgage Strategy: "This is an issue where European legislation has made it worse for UK consumers – there is no doubt about that."

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