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Mortgage rate warning is voted down

[ Posted April 26th, 2012 ]

The Government has voted down the Labour mortgage rate warning that would have resulted in amending the Financial Services Bill so that lenders would be forced to educate borrowers before they signed their mortgage papers.

The Labour party wanted a mandate that would require all lenders to be advised clearly on the fact that interest rates could change over the lifetime of the mortgage and how rate increases could change the actual costs and affordability of the mortgage package that they are considering purchasing.  Chris Leslie, the Shadow Treasury financial secretary, led the call for the amendment that would have brought new proposals to the table over the next six months.

Mark Hoban, the Treasury financial secretary, stated that the change to the bill was not needed because the FCA is responsible for checking and requiring that mortgage providers offer an adequate amount of information to borrowers.

According to Hoban, placing a separate amendment to spell out that lenders needed to inform lenders about increasing mortgage rates was not necessary.  He also added that many lenders already offer mortgage lenders information about this anyhow since they want to avoid foreclosures down the road.

Hoban went on to explain that those who seek out fixed mortgages already receive information on changing interest rates and there is currently a consultation being conducted on the mortgage market.  One of the provisions that are part of the consultation includes requiring lenders to think about the changing interest rates in terms of each lender before offering them a home.

Therefore, the implication is that if lenders are lending funds responsibly and weighing in the change in interest rates then a lender should already be deemed able to afford the change down the road making it a non-issue.

Leslie on the other hand defended the proposal before it went up to vote stating that it was needed to help protect consumers down the road when their mortgages suddenly become more expensive because of the jump in interest rates.

He explained that mortgage rates are not going to stay low forever and people need to know that in the future mortgage rates are going to increase and therefore need to be ready and able to accept the change. He added that he was worried consumers will believe that mortgage rates are really this low when in fact the current mortgage market is far from normal.

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