Refused: Anne and Carl Winter with baby son Danny
When new parents Anne and Carl Winter found a three-bedroom semi in a quiet street in Coalville, Leicestershire, they thought it would be the perfect home for their family.
The little house, which was on the market for £165,000, would provide a welcoming home for the couple and their baby son Danny.
Most importantly, it was cheaper than their current home — meaning they could slash their outgoings by around £550 a month as the cost of raising their child started to bite.
The couple thought their bank, Santander, would have no problem allowing them to transfer their home loan to the new house, as it would free up more disposable income.
But, much to their bewilderment, the bank used lending rules to throw out their application.
The young couple, who have never missed a repayment, feared they would face a £7,700 penalty to repay their loan early if they moved and found another lender.
The only alternative — staying put — meant struggling along with higher repayments than they would like.
They are among 30,000 borrowers dubbed mortgage ‘prisoners’ because they are trapped on expensive deals.
A report by the Financial Conduct Authority found that banks routinely tell these customers that they cannot ‘afford’ to switch deals — even though it would slash their repayments.
The City watchdog wants lenders to stop putting up these bizarre barriers and allow customers to switch when they aren’t having trouble repaying their debts.
Anne, 22, says: ‘All we wanted was to move to a cheaper house, reduce our bills and debts. We can’t understand the logic — why is Santander forcing us to carry on struggling?’
Like many young couples, the Winters, whose names we’ve changed, were keen to get on to the housing ladder as early as possible.
In 2014, after years of saving, they scraped together an £8,450 deposit for a new-build in a village in Derbyshire close to Burton-on-Trent. They needed a £160,550 mortgage and Santander agreed to lend to them.
Stay put: Santander used lending rules to throw out Anne and Carl’s application for a smaller mortgage
But when Danny arrived a year ago, the couple found themselves in tougher financial straits. Faced with the cost of a nursery place, Anne had to give up her £17,000-a-year job at the council to look after her son.
The couple had around £20,000 in credit card debt, from their wedding in 2016 and for a training course for Carl, 24, to qualify as a lorry driver.
They were paying off this debt each month on a 0 per cent interest credit card.
They have excellent credit records but, after a while, decided it would be prudent to move to a cheaper home and cut their bills.
By reducing their mortgage to £145,000 from £165,000, the Winters would save around £200 a month. In addition, their current home has increased in value from the £169,000 they paid in 2014 to around £195,000.
Moving would free up equity to pay off their credit card debts, saving them another £350 a month.
Initially, a Santander adviser said they could move their mortgage. They were told there would be a modest early repayment charge to break their five-year fixed term early.
This would be 5 per cent of the £9,000 difference between their old £154,000 mortgage and the new £145,000 they would take out — so a total of £450.
The Winters pressed ahead and found a buyer. But a few weeks later Santander rejected their application. The bank said the couple had failed affordability checks introduced in 2014 by the City watchdog.
Santander rejected the Winters’ appeal telling them to get debt advice
Under these regulations, known as the Mortgage Market Review, banks weigh up applicants’ monthly expenditure and income before deciding whether to offer a mortgage.
Even though the Winters’ outgoings would fall, Santander wouldn’t countenance a new deal of any kind.
Anne found a part-time job and Carl, 24, provided a letter from his employer showing he will soon get a £10,000-a-year pay rise.
Santander rejected the Winters’ appeal anyway, telling them to get debt advice. It said if they want to move, they will have to pay a £7,747 penalty and find another lender.
Amid the delay, the semi they hoped to buy has been snapped up. Santander says the adviser who gave the Winters incorrect information will receive further training and has offered £100 compensation.
When regulations were less strict, borrowers such as Carl and Anne would usually have faced no trouble in finding a new loan. But following the shake-up — designed to stop a repeat of the 2008 financial crisis — banks now conduct strict affordability checks.
This can mean you get rejected for a new deal even if your finances are exactly the same as when you were first accepted for the loan.
Worse, many mortgage prisoners find that other lenders turn up their noses at their business. As a result, they end up stuck on their existing lender’s standard variable rate, which is usually extremely expensive.
In its report, the FCA admits its new rules have contributed to the problems mortage prisoners face.
Ray Boulger, of mortgage broker John Charcol, says: ‘This is a classic example of a couple doing something sensible and being thwarted by the system. How is this treating customers fairly?’
A Santander spokesman says the Winters’ finances have changed ‘significantly’ since they took out the mortgage. He adds: ‘We will always look to ensure that our lending will not lead to problems with debt. We believe the new property is outside the Winters’ future affordability.
‘We would be happy to review this case again to try to support them in finding an affordable solution.
‘In this particular circumstance we would be happy to look at waiving the early redemption penalty if the customer decided to move to another provider.’
Don’t get caught out by the mortgage lottery, make sure you follow tips to get the best deal
How to make sure you get the best mortgage rate
By Leah Milner, for Money Mail
Hundreds of thousands of mortgage borrowers are throwing away £1.15 billion a year because they unwittingly sign up for the wrong deals, a major report has revealed.
Some of these homeowners are even shopping around using an independent broker or price comparison website — but still fail to find the cheapest mortgage.
The alarming findings emerged from an investigation by the City watchdog that shows millions of customers face a lottery when it comes to how much they are charged for their loan.
In a warning to customers, the Financial Conduct Authority (FCA) says about 30,000 people are effectively mortgage ‘prisoners’ because their lender is blocking them from getting a cheaper deal.
Then, three in ten of those who do switch — or 570,000 people a year — fall foul of biased brokers and comparison websites that make it impossible to find the best rates. This is costing customers £550 a year on average, the FCA says, or £1.15 billion.
Another 800,000 are failing to shop around for six months after their fixed deal expires. That means they go on to their lender’s most expensive deal — the standard variable rate — and end up paying £1,000 more than they need to.
A further 260,000 are customers of lenders who do not offer new deals. In some cases, they are unaware they can switch lenders to cut their costs. Others cannot switch because of tough new lending rules introduced after the 2008 financial crisis.
Here, we explain how to beat the mortgage lottery . . .
Beat the traps when you look for a mortgage
You may think you’re a pro when it comes to scouring the market for the best mortgage — but don’t bet on it.
One issue is that there are more than 100 lenders to choose from, all with different fees and terms and conditions.
Find the best mortgage
This is Money’s mortgage finder tool is powered by broker London and Country and lets you check the best rates that you could apply for.
Enter your property value and mortgage amount and it will show you the top rates, which you can filter for fixed rates of different durations.
Comparison websites cannot tell you how likely you are to be accepted by a particular lender — or show the true cost of a mortgage in your circumstances. Some firms are very small and don’t show up at all in online searches.
Crucially, each bank and building society targets different types of customers with different rates and has its own detailed set of criteria to assess potential borrowers.
The FCA says the limitations of comparison sites are ‘not made clear to customers’. It’s no good simply applying to every lender: it’ll take far too long and getting rejected by a mortgage lender can damage your credit score, making it harder to get accepted in future.
As a result, three in four borrowers end up going with one of the six big banks and building societies. Often they simply stick with their existing mortgage lender as it all seems too much hassle.
The FCA wants firms to develop new tools that make it easier to compare deals you’ll qualify for.
You can’t always trust brokers
Half of borrowers turn to a mortgage broker for help. The good news is that the FCA found these customers shaved an extra £600 a year off repayments on average.
The bad news is that in 31 per cent of cases, the broker failed to find the very best deal on the market.
Most brokers ‘are reliant on their past experience’ and information from ‘specific lenders’ with whom they are ‘familiar’, the FCA says. ‘This appears to be a barrier to effective searching,’ it warns.
Some brokers consider only a small handful of lenders.
This could be because they have commercial agreements to recommend only deals from certain firms. But the FCA says it found a £400 a year variation in the cost of mortgage quotes from different brokers who were supposed to be completely independent. Some lenders also offer cheaper deals to customers who apply directly.
One way to tackle these problems is visiting a comparison website or you can use This is Money’s mortgage finder tool to check the best rates you could apply for, then take this information about the best deals to a broker.
Ensure they are independent and mention the information you’ve found. Once you have a recommendation for the best deal you can get, call the lender and find out whether you could get a better rate by going direct.
Compare the true costs
Buyers and remortgage customers face a baffling range of different pricing options on comparison tables.
It can be difficult to know whether the mortgage with a low rate and a high fee will work out cheaper than one with a higher rate and lower fee. This normally depends on the size of your loan.
The FCA says older borrowers and those on lower incomes are more likely to choose poor-value deals by mistake.
‘With age we see a sharp worsening of mortgage selection for those over 60,’ the report says.
Your best bet is to note down all the figures for the deals you’re comparing and plug them into our True cost mortgage calculator. This will show the true cost of the deal – including fees.
Escape the zombie mortgage lenders
Hundreds of thousands of borrowers are stuck with ‘zombie lenders’ that cannot give them a better deal because they are not authorised to offer new mortgages.
Over the past decade, thousands of borrowers have had their mortgage debts sold to new owners as crisis-hit banks were bailed out by the Government or rescued by other firms.
These include borrowers who took out mortgages from Northern Rock and Bradford & Bingley and whose loans were taken over by the Government-run UK Asset Resolution, as well as many others whose loans were with lesser- known firms.
The watchdog says 260,000 borrowers have mortgages with companies that only have the right to collect their payments and cannot offer them new deals.
It says nearly half these borrowers would benefit from switching, but were likely to ‘face barriers’ due to the difficulty of meeting other lenders’ criteria.
Of the remaining number a further 120,000 are already thought to be on relatively low rates, while 20,000 are thought to be behind with payments and couldn’t switch anyway.
Rising house prices over recent years could have lifted the amount of equity that you have in your home – and that means you may be able to apply for better deals
Don’t forget to switch your mortgage on time
An estimated 800,000 borrowers waste £1,000 a year because they leave it more than six months to find a better deal when their current fixed or discounted offer ends.
The FCA says some lenders will target certain customers with offers for new rates when they get to the end of of their deal, but not others.
Another problem highlighted by the FCA is that we’re all so busy — particularly when moving home dealing with buyers, sellers, solicitors and agents.
Typically, borrowers roll onto expensive standard variable rates (SVRs), which are the costly deals lenders move you onto once your introductory offer period is over.
Money Mail analysis found the savings on offer can go as high as £3,205.
The average SVR is 4.77 per cent, while the cheapest two-year fixed rate for those with a 40 per cent deposit is currently 1.36 per cent with no fee, from Danske Bank, according to comparison website Moneyfacts. A borrower with a £150,000 mortgage would save £3,204 by switching from the variable rate to Danske Bank.
Charlotte Nelson a finance expert at Moneyfacts said: ‘With mortgage rates rising this is an ideal time for the FCA to highlight their concerns about the mortgage market, as the lowest-priced deal is not always the best choice for borrowers, based on true cost.
Customers need to weigh up the rate, fees as well as any incentives to find the right deal and not be blind-sided by lowest rates alone.’
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries said: ‘There are a series of contradictory statements in the Mortgages Market Study.
Despite the broad conclusions being very positive and there being no recommendations for significant change, AMI agrees with the FCA that the market could still be improved.
‘This is why we have indicated that we will work with the FCA to develop better tools in order to assist consumers in understanding which brokers can provide then with a full or limited service and how we ensure that lender criteria are better understood by all market participants.’
Tashema Jackson, money expert at uSwitch.com, says: ‘The FCA’s report highlights that there could be real opportunity for further innovation in how consumers compare and take out mortgages.
‘Price comparison sites are pretty good at showing consumers the mortgages available, but aren’t able to access the data required to show prospective customers what mortgages they might be eligible for.
‘If the FCA could help comparison sites access this information from the lenders themselves, comparison could be even more useful for mortgage consumers.’