Lenders accused of dirty mortgage tricks

Published 13th Apr 2009

Complaints over Halifax after claims properties undervalued for remortgage, pushing customers into more expensive deals


Halifax, Britain’s biggest lender, has been accused of undervaluing customers’ properties when they come to remortgage, forcing them on to more expensive deals.

Brokers say borrowers may see as much as 40% wiped off the value of their homes, although prices have fallen by an average 21% from their August 2007 peak, according to Halifax’s own house-price index.

The down-valuations mean borrowers no longer qualify for the lender’s best deals. Halifax charges 5.29% for its five-year fix if you have equity of 5% or less, compared with only 3.99% at 25%, a difference of £2,600 a year on a £200,000 interest-only loan.

The move comes amid growing evidence that lenders, while claiming to offer competitive deals following government pressure, are in fact imposing sneaky conditions which mean even “good” borrowers do not qualify for the best rates.

HSBC said last week it would commit £1 billion in loans to people with deposits of 10%, helping first-times buyers back into the market. This was part of the £15 billion it has already committed to lend this year, and it has previously offered a market-leading fix of 3.99% over five years.

However, one Sunday Times reader complained she was rejected, despite having the required 40% equity, because she did not have 75% of the value of her mortgage in savings — £160,000.

Neil Avery of Timothy James, an adviser, said: “We’re increasingly finding that what lenders are saying and what they are doing is very different. The outcome implies Halifax is working the property market to its advantage.”

Down-valuations

Thousands of customers who took out Halifax’s cheap two-year deals immediately before the credit crunch in 2007 are now applying to the bank for a “transfer deal”.

However, brokers have been alarmed to see the value of clients’ homes on Halifax’s online valuation system — which is pegged to its house-price index — slashed by tens of thousands of pounds in a matter of days.

The bank is then offering existing customers transfer deals at higher rates.

Avery cites the case of one client living in a substantial London home. “On Friday their property valuation according to the Halifax’s computer system stood at £1.3m. This was already down 19% on what the client paid for the house two years ago,” he said.

“Halifax published its new valuations on Tuesday, just three days later. The house was worth £965,000 — a further correction of 25%. This will mean the couple pay about £290 a month more, or £14,000, over the next four years,” Avery said.

Giles and Nikki Holland, of Earlsfield, south-west London, also Halifax customers, received an automatic valuation of £400,000 — £100,000 less than the one they were given by their estate agent. The difference will add £2,000 a year to their interest repayments.

Avery said: “Halifax boasts of offering relatively good remortgage deals to people who are in negative equity — but it doesn’t say its own valuation system could be pushing people into the red in the first place.”

Halifax said: “We take a prudent approach to the use of automatic valuations and they are closely monitored against standard valuations. The model adjusts dynamically, reflecting changes in the market as they happen to ensure the valuation is accurate. Where intermediaries and their clients wish to appeal against the valuation, we will deal with it on a case by case basis.”

Bank of Scotland, which is part of Lloyds Banking Group like Halifax, has moved to ban customers who take out popular remortgage deals offering free legal fees and valuations from appealing against valuations altogether. Those who want to have this option have to pay the costs, the lender said.

Hidden conditions

Katrina Murray, 36, of St John’s Wood, London, was turned down for HSBC’s five-year deal at 3.99% despite having a spotless credit record, the required 40% deposit and £15,000 in savings — because she wanted the deal on an interest-only basis.

The bank said she would need 75% of the loan value in savings to qualify — £160,000. HSBC said: “We enforce this very strictly. Those who want to take out an interest-only loan must have a repayment vehicle to support it.”

However, Murray said: “Why do they impose this at the last minute and why is it not advertised in their conditions? Who in their right mind would have this amount of savings in this market if they could pay off more of their mortgage sooner? This appalling practice has meant a waste of time and effort for me.”

Bien said: “Lenders are increasingly making it more difficult for people to take out loans on an interest-only basis. Whereas during the property bull market they may not have pressed clauses in contracts, such as the need for a repayment vehicle, they are certainly doing so now.”

You can’t ditch your fix

Meanwhile, Nationwide is not allowing existing customers to switch to cheaper fixes even if they are willing to pay the penalty, depriving them of thousands of pounds in savings.

For example, in March last year, Nationwide was offering a three-year fix at 5.85%. Today its best deal for three years is 3.98%. A borrower with a £200,000 loan could save £2,485, even after paying a 2% early-repayment penalty and an arrangement fee of £995, if the building society let existing customers move.

Source: ' Sunday Times '

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