What is a CAT mortgage?
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Mortgages : What is a CAT mortgage?
The mortgage market, like any other loan market, can be confusing for borrowers,
especially those first time homebuyers. In any given year, there are numerous
complaints about lenders not disclosing the terms of the loan to the fullest
or borrowers simply being overcharged or sold something they do not need. Taking
this into consideration, the UK government introduced in January 2000, the CAT
mortgage standards, which stands for Charges, Access, Terms, to protect
borrowers.
The objective of this move is to prevent confusing marketing and hidden charges
by lenders to baffle potential borrowers. The UK government now also regulates
the mortgage lending market under the Financial Services Authority and since
2002, all mortgage advisors in the UK are required to hold a professional qualification.
All this is good news for the potential homebuyer.
The CAT mortgage standards cover the following areas:
- Charges – All additional costs to a mortgage need to be disclosed
to the borrower upfront. Additionally, the lender may not charge a separate
fee for a mortgage indemnity product and cannot require insurance coverage
to be purchased. The standard also caps the differential to the base interest
rate for variable rate mortgages to 2% and lenders can no longer charge redemption
or early settlement charges. For fixed or capped mortgages, booking fees cannot
exceed £150.
- Access – lenders must provide access to loan to existing borrowers,
on the normal terms offered to other borrowers. The borrower can select the
repayment dates themselves and early repayment is allowed at any point in
time of the mortgage.
- Terms – brochures and loan documents need to be worded clearly and
not be misleading. Lenders may not offer tie-ins, which may confuse borrowers,
such as insurance coverage – these should be offered and purchased separately
by the borrower. And borrowers who are in repayment arrears up to three months
should only be charged standard interest on the debt portion only.
Lenders are required to adhere to the CAT
standards and most mainstream lenders will advertise their compliance very
clearly.