Lenders make their voice heard on MMR
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The regulator needs to apply some common sense to its Mortgage Market Review proposals and it’s good to see lenders and the wider mortgage industry being vocal on what will and won’t work
The Financial Services Authority has come under attack from some of the country’s largest lenders over certain parts of its Mortgage Market Review. The overwhelmingly negative response from lenders largely centred on the government’s suggestion that the FSA should effectively regulate products, with proposals to ban riskier 100% LTV loans and self-cert mortgages singled out.
This is something that most of us have lobbied for since it was first mooted by the regulator before the MMR was published and it looks like common sense may indeed prevail.
LTV caps won’t work as the amount lenders are prepared to lend should be a commercial decision based on the acceptable appetite for risk they are prepared to take.
Admittedly, you could argue that this was always the case and it was the reason that we have ended up where we are. But throwing the baby out with the bath water is not going to solve the problem.
Aside from the FSA’s admission that there was little support for a ban on higher LTV loans, it also confirmed that views were polarised in response to the proposed ban on self-cert loans.
Quite rightly the lending community makes the point that banning these mortgages would unfairly penalise the self-employed.
As we all know self-cert was originally introduced for the self-employed who struggled to prove their income through conventional means and here the clue is in the title.
I do wish the government would stop rolling self-cert and fast-track together - they are not the same thing
The blunt instruments used by lenders in the past to prove and verify income have not been flexible enough to cope with self-employed income.
Simply looking at the net profit declared in individuals’ accounts is next to useless and a lack of innovation in this area meant that lenders had to find alternative ways of confirming affordability for self-employed clients.
Often straightforward, common sense methods of income verification were not used because the rules did not allow it.
For example, all income will typically go via a bank account and is visible.
Equally in most cases these customers can demonstrate a track record of affordability by showing clean payment records for existing
ortgages, rental obligations or loans but this is something lenders rarely took into account.
Some accounting entries could do with a dose of common sense as well. Write-downs like goodwill or depreciation are accounting tools and do not have an impact on the affordability of individuals aside from the tax they pay. I don’t for one second advocate a return to the heady days of self-cert, but I do think there is a place for a risk-based assessment of lending to those with irregular and diverse income streams that do not conform to the norm.
Balanced with the overall credit-worthiness of individuals, this should allow lenders to lend in most cases.
Hot on the heels of this, chancellor Alistair Darling announced in the Budget last week that formal discussions would start between Revenue & Customs and lenders to establish a new income verification service aimed at supporting lenders’ affordability checks.
Some lenders have asked for this for a long time and it makes sense so long as it is used with the consent of customers and as part of the process, not to the exclusion of all else.
I also wish that the government would stop rolling self-cert and fast-track up together as effectively the same thing. They are not the same and never have been.
Fast-track is based on credit scoring with lenders taking a calculated risk on individuals based on complex credit scoring whereas self-cert asks customers to verify that they can afford the mortgage.
I suspect that separating these two different types of mortgages is not something that is politically desirable due to the larger combined number able to more easily grab headlines.
It’s about time that common sense was applied to some of these draconian proposals under the MMR and it’s good to see that lenders and the entire mortgage community are making their voice heard.
A cynical Stamp Duty ploy
In the Budget the chancellor announced that Stamp Duty threshold for first-time buyers would be lifted from £125,000 to £250,000 for the next two years effective immediately.
While most of us see this as a welcome move and one that will help stimulate the bottom end of the market, we have been asking for this for the past two years and instead of acting decisively this government has just tinkered with the system.
The Council of Mortgage Lenders has calculated that had this been in place last year it would have helped 92% of first-time buyers some 20% more than those helped by the previous reduction.
Many of us have been asking for a more effective stimulus for first-time buyers, largely seen as the crucial element in the property transaction chain as without them the rest of the market grinds to a halt. I just wonder if this is too little too late or a cynical ploy in an election year.
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