Small mortgage, big problem

By JUSTIN HARPER FOR MAILONLINE
Updated:

 

BORROWERS with small mortgages are being penalised by not being allowed to move on to better home loan deals. Some lenders set thresholds - often as high as £25,000 - that existing borrowers have to meet to be able to remortgage or move to another deal. So anyone with a mortgage under the limit could find themselves stuck on the rate they paid before their loan fell beneath their lender's threshold.

This affects people taking out a small mortgage and those in the later years of their home loan who have a small sum left to pay. Many lenders do not like to deal with a home loan of less than £25,000 because it can then be covered by the Consumer Credit Act. This imposes strict limits on lenders.

Borrowers have a cooling-off period to pull out of a small loan, and lenders have to write to the borrower each time terms and conditions are changed.

Therefore, many lenders avoid dealing with home loans under £25,000. Ray Boulger, at mortgage brokers Charcol, says: 'As well as not wanting to fall within the Consumer Credit Act, many lenders do not want to bother with small sums because they are not worth their while.'

The problem is highlighted by the case of Elizabeth Walton and her family, who have tried to move on to a better deal from their lender Bradford & Bingley after 10 years with the company.

Ms Walton, from Otley, West Yorkshire, who owes £12,000 on her interest-only mortgage, felt she was paying too much at £120 a month so she contacted B&B to get a better deal.

Bradford & Bingley wrote back saying: 'Having checked your details, your mortgage account shows that your current borrowing with us is below the minimum required for considering revised rates and terms.

'Due to the associated costs of maintaining your account, we have stated a minimum borrowing level.' B&B insists on loans being at least £20,000. Ms Walton, a 44-year- old kitchen assistant, who lives with her partner David Cook and her three children Amy, 18, Sarah, 16, and Andrew, six, is unhappy with the response. 'I am absolutely furious because I owe only £12,000 and it was suggested that I should increase my debt to get a better deal when I want to do the opposite.'

Rex Kirk, spokesman for B&B, says: 'We treat existing borrowers the same as new ones. Most lenders adopt a minimum loan size before they will take on anyone or let them transfer - ours is £20,000, others have £25,000 and some are even higher.' However, some lenders, such as Nationwide and Halifax, do not have a minimum loan size.

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