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The BBC's John Moylan: "Cat standards are widely welcomed"
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Thursday, 14 October, 1999, 06:54 GMT
New standards for mortgage lenders

houses Your dream home may be costing too much, say ministers

Mortgage lenders have been given a new set of standards to use as a model, in a government crackdown on what it calls "rip-off Britain".

The move is aimed at simplifying house-buying and cutting mortgage payments for millions of homeowners.

The proposals set standards on fees and contract terms.

The Property Maze
According to ministers, a 'model mortgage' would include:

  • No fees for arranging a standard variable rate mortgage

  • Charges for arranging a fixed rate or capped mortgage would not exceed 200

  • Interest would be calculated on a daily basis. Many lenders calculate interest annually at present.

  • No obligation on the borrower to buy any other product - such as life insurance

  • No charges for paying off the loan early.

    The mortgage would adhere to the government's standards on cost, access and terms (CAT).

    CAT standards already apply to Individual Savings Accounts.

    Economic Secretary to the Treasury Melanie Johnson said: "CAT standards will be the benchmark for mortgages. With a CAT-standard mortgage you will be able to tell at a glance what you can expect from each product."

  • couple Home-buyers could tell at a glance which mortgages meet the standards
    Most home-buyers find the variety of mortgages on offer highly complex. At present, there are about 4,500 different types of mortgage on offer.

    Ministers have been concerned that some of the Bank of England's base rate cuts earlier this year have not been passed on by lenders.

    This summer, the government began a blitz on traders and businesses who overcharge consumers for goods and services in a range of areas.

    And earlier this week, ministers unveiled plans to speed up house-buying by forcing sellers to prepare an information pack for buyers.

    'Not the only type'

    The new CAT standards will not be compulsory and will not require extra legislation, so could be in place as soon as early next year.

    CAT-marked mortgages would also be open to existing mortgage holders, some of whom see new customers being offered much more favourable products than they have access to.

    The Council of Mortgage Lenders cautiously welcomed the proposals.

    But Michael Coogan, the CML's director general, said: "It is very important that consumers do not see CAT-standard mortgages as the only desirable type of mortgage.

    "Borrowers come from widely differing circumstances, and there are many reasons why someone might choose a non-CAT-standard mortgage."

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    See also:
    11 Oct 99 |  Your Money
    Homebuying shake-up
    29 Sep 99 |  Your Money
    Mortgage lenders face summit quiz
    29 Sep 99 |  Your Money
    Q&A: Crackdown on home lenders

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