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CAT Standard , stands for Charges, Access, and Terms - which have to be low, easy and fair respectively and were brought in by the H M Treasury in 2000. The details of which are supplied below.
There are two CAT standards:
The essential features of CAT standard mortgages are summarised for borrowers in the table below. The notes which follow explain and expand upon the table so that lenders can be clear what is expected of them.
Variable rate fixed or Capped rate
Specification for lenders
CAT standards for mortgages are voluntary. Lenders should compare the contractual terms of any mortgage product for residential properties against the standards and may advertise a loan as CAT standard if it meets or betters them.
The CAT standards for mortgages may also be used as benchmarks. Lenders may find that it helps borrowers to compare mortgage products to a CAT standard mortgage. Even where a CAT standard mortgage may not be the most appropriate or attractive loan, borrowers may find it helpful to use comparisons of competing mortgages against a CAT standard mortgage to help assess value for money and see which mortgage suits their circumstances.
CAT standard mortgages should be easy for borrowers to understand. Once a borrower has taken out a CAT standard mortgage, it should give rise to no surprises nor unforeseen features.
Which mortgages can be CAT standard?
The CAT standard does not set limits on loan to value ratios (ie minimum deposits compared to property value) or borrowers' income multiples (ie the maximum loan compared to the borrower's income). These are up to the lender, taking account of the borrower's ability to repay the loan.
Lenders may set a minimum loan size. If they do, it must be £10,000 or less for a CAT standard mortgage.
Which customers can get a CAT standard mortgage?
Interest calculation and payment
Where lenders agree regular monthly payments (including interest)with borrowers, the borrower may initially choose any day between the 1st and 28th of the month. CAT standard loans may also permit irregular payments, eg in flexible mortgages.
This means, for example:
on moving home, the borrower should be able to continue with a fixed
or discounted rate still running on a CAT standard mortgage, up to the
amount of the mortgage on the original property;
Fees, charges and commission
CAT standard mortgages cannot have explicit separate charges for mortgage indemnity guarantees, mortgage indemnity insurance, or any other equivalent fee the lender may charge. Lenders may however charge a higher interest rate to borrowers with smaller deposits provided that all the other conditions (including the interest rate margin for variable loans and redemption charges for fixed loans) are met.
Lenders should send each borrower with a CAT standard mortgage an annual reminder of any ongoing fees. There is no set timetable for sending this information. This information should include any sealing fees payable when a mortgage is fully paid off and any information about the charges which may be made if the borrower goes into arrears. Amounts should be expressed as the cash payment which would be due if the charge was made when the information is sent. Lenders should give borrowers at least 3 months' notice of any upward variations in fees or other terms not to the borrower's advantage, other than changes in interest rates.
The lender's commitment
Once a CAT standard mortgage has been made, the lender should alter the notice terms set out here only in exceptional circumstances, eg if the regulator intervenes, if the lender becomes insolvent; or in extreme market conditions.
The variable rate standard
The variable rate standard does not set a timetable for changes to mortgage interest rates. Where the mortgage interest rate must fall to reflect base rate movements to keep within the CAT standard, the cut should take place within a calendar month of the fall in base rate. There is no set routine for when mortgage interest rates should follow base rates upward.
A lender offering a variable rate CAT standard mortgage may offer different interest rates to different borrowers, provided that all loans in the CAT standard range meet all the CAT standard conditions. For example a lender's CAT standard mortgage product might have different margins against base rate according to the loan to value ratio of the mortgage.
The fixed or capped standard
The standard sets a maximum redemption charge. It is 1% of the outstanding loan for each year of fixed or capped period remaining. The maximum falls month by month. The redemption charge on a CAT standard mortgage may be less than this.
If a borrower repays capital on a CAT standard mortgage early, but not in full, the redemption charge should be in proportion to the total mortgage debt, or less.
Examples may help explain. For a mortgage which is initially fixed or capped for 3 years, and which has an outstanding balance of £50,000 at the point of early repayment, the maximum redemption charge is £500 per year of the fixed period still left eg:
Lenders should remind borrowers with CAT standard mortgages each year how much the redemption charge would be, in cash, on the date of the reminder It may also be helpful to send information about how redemption charges may alter in future, but this is not essential.
If a borrower moves home staying with a CAT standard mortgage, but smaller, the lender may charge a redemption charge on the reduction in the original mortgage. That is, the part of the mortgage which in effect continues with the new property should not attract a redemption charge when the borrower moves house. For example, if a borrower reduces a CAT standard mortgage by _ on moving, the lender may charge a redemption charge on _ of the value of the debt outstanding when the move takes place.
The maximum reservation fee of £150 includes any other fees with equivalent effect, eg a fee to establish an account for a fixed mortgage. Borrowers may also have separate fees for the normal costs of establishing a mortgage, eg fees to solicitors and surveyors. These should of course be disclosed up front if the lender arranges these services and charges for them.
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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.