Introduction
CAT standards have been introduced to try and ensure that certain financial products
meet universal standards of quality. To receive a CAT mark, a mortgage product must
meet a variety of criteria. There are a number of requirements that are common to
all types of mortgage product, while others are relevant only to variable rate mortgages
or those with introductory offer periods:
Requirements for all mortgages in order to receive a CAT mark
- The offer must be available to existing and new customers. Many mortgages with introductory
offers are only available to new customers. These will therefore be precluded from
gaining a CAT mark.
- The minimum loan amount is capped at £10,000. In other words, any mortgage that
requires you to borrow any more than this sum will not be awarded the standard.
- Mandatory product purchases are not permitted. A lender cannot insist you purchase
their buildings insurance, income protection products or anything else that is sometimes
sold in conjunction with a mortgage.
- The interest rate on the product must never be more than 2% above the bank base
rate.
- Interest must be calculated daily as opposed to monthly or yearly. To find out the
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- The customer must be permitted to make early repayments without penalty.
- There must be no separate charge for Mortgage Indemnity Guarantee premiums. Any
additional cost arising from this must be incorporated into interest rate.
- Other fees must be explained in cash terms each year - this includes redemption
penalties. This cannot therefore be expressed as a percentage of the loan amount
or an amount of interest equal to that charged over a period of time. - Borrowers
must not be forced to pay fees to brokers.
- Three months notice must be given of any changes in the fee and charging structure.
- If you fall into arrears, you cannot be charged a higher rate of interest as a
penalty for at least three months.
- The mortgage must be portable if the customer moves house - even within the discount
period if there is one. This means you can continue paying the same mortgage and
will not incur any redemption penalties.
- The customer must be able to freely switch to another CAT mortgage provided by the
same lender at any time.
Specific to variable rate mortgages (including tracker mortgages)
- There can be no redemption penalties whatsoever.
- Rates must change within one month of an alteration to the Bank of England base
rate.
- There can be no arrangement fees.
Specific to other types of mortgage
- There cannot be any extended redemption penalties. In other words, if there is a
discount or capped period connected to the mortgage, any redemption penalties cannot
extend beyond that period of time.
- There is a cap on the size of any early redemption penalties within that period.
- Arrangement fees must be less than £150.