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Another solution to declining transactions?

Letter to Brandon Lewis, MP. Minister for Housing, * UPDATED WITH REPLY

To: Brandon Lewis MP, Minister of State for Housing and Planning
5th November 2015

Dear Brandon,

I very much enjoyed your presentation the Negotiator conference at the Park Lane Hilton on Tuesday, and thank you for warming up the audience (as I was the next speaker after you!) and for taking my question at the end.

You asked me to email you regarding the idea of lubricating the property market by freeing up mortgage portability, summarised as follows:

Many people who would very much like to move house, especially downsizers and those in debt, are unable to do so because they are trapped by their mortgage. I essence, since they took out their existing mortgage a few years ago, lending criteria have tightened under the MMR regulations introduced in April 2014. This means that most homeowners who wish to move house are obliged to requalify for a new mortgage from scratch, even if they wish to reduce their existing mortgage by moving to a cheaper property.

My proposal is that, subject to certain criteria, any existing mortgage should be fully transferable to another property. After all, a mortgage is essentially security for a personal loan. Why not be able to switch the security without losing the loan?

Imagine the following scenario: Mr and Mrs Jones took out a 25 year mortgage of £200,000 in 2010 for their £300,000 purchase. Since then their income has remained the same but in planning for a possible redundancy, ill health or retirement, downsizing, to pay off some debts, or simply to move closer to family, they now wish to reduce the burden of their mortgage payments or property maintenance costs by moving to a cheaper property and reduce their mortgage from £200,000 to £110,000.

However, by having to re-qualify as if they were new borrowers, not only would Mr and Mrs Jones be subject to a possible higher interest rate than they enjoy with their current mortgage, but having perhaps missed a credit card payment, or failed the stress test that did not apply when they applied for their current mortgage, they no longer qualify for a new mortgage. Their options are then either to rent (which as passionate homeowners they would prefer to avoid) or stay put, with the burden of a larger mortgage than they want or need, in a property they would prefer to move out of.  

By allowing Mr and Mrs Jones to “port” their remaining 20 years of their current mortgage on its existing terms, their lender would be no worse off (and may actually be better off if Mr and Mrs Jones are wisely planning to reduce their debts thereby avoiding possible mortgage difficulties in the future).

Given that a mortgage is simply a form of security, I would argue that these people should be allowed to simply keep their existing or smaller mortgage but have the legal right to transfer the security onto a different property easily and without penalty.

Having discussed this with a number of estate agents there is clearly a need for this and it should be enshrined in law as it could possibly free up a substantial number of transactions, benefitting the public, increasing housing availability, reducing debt, and generating the economic benefits associated with a healthy property market – with no apparent down-side!

Suggested conditions:

  • The homeowner may not apply for amount greater than that of their current mortgage.
  • Repossession proceedings must not have already commenced in respect of their current property (they may want to move in order to pay off mortgage arrears and reduce future  payments)
  • The homeowner must cover all reasonable costs associated with the transfer of their mortgage, plus SDLT etc.

I would therefore ask you to consider introducing legislation immediately relaxing MMR requirements in certain circumstances and requiring lenders to allow all existing and future mortgages to be fully portable without obstruction.

I look forward to hearing your thoughts on the above. Many thanks,  

Kind regards,

Richard Rawlings

Credentials: Richard Rawlings is an award winning estate agency trainer with over 1000 clients worldwide.  Linkedin profile at https://www.linkedin.com/pub/richard-rawlings/9/817/8a3 

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UPDATE: A few days later I received a positive response from HM Treasury to whom my email was passed. You can download their extensive reply HERE, but the most interesting comment is their final paragraph, which reads:

"I think your idea that any existing criteria should be fully transferable to another property, subject to certain conditions, is a very interesting one. I am also grateful to you for drawing my attention to the issues you set out in your email, specifically the situation of those who you believe want to move house but are trapped by their mortgage. I can assure you that your suggestions will be used to inform the policy making process."