MMR could add £18 to cost of every mortgage
Share
The Financial Services Authority’s plan to make lenders responsible for affordability could add £18 to the price of every mortgage.
In its consultation paper on responsible lending last week the FSA introduced stricter guidelines for lenders assessing affordability, and made them solely responsible for checking it.
Ed Harley, head of mortgage policy at the FSA, says: “The cost to lenders of implementing the new requirements will be between £3m and £15m, with ongoing costs of between £5.8m and £20.3m.
“Ongoing costs equate to an additional cost per mortgage sale of about £3 to £18, depending on the complexity of the case.”
Alan Cleary, managing director of Precise Mortgages, believes this could result in a number of firms diversifying to offer outsourced origination services.
He says: “The cost for lenders to process mortgages is going to rise, and a lot of lenders don’t like hiring staff because of the expense involved. Firms that have the technology and systems to carry out these checks will be able to offer this as a service to others.”
But Paul Broadhead, head of mortgages at the Building Societies Association, says it is not likely that lenders will use third parties to process affordability.
He says: “It’s unlikely for two reasons. First, most lenders already have these systems in place and second, the FSA is clear that lend-ers are ultimately responsible for checking affordability.”
If you enjoyed this article, sign up here to receive daily email updates from Mortgage Strategy and Follow @mortgagestrat
Readers' comments (2)
Grey Haired Underwriter | 20 Jul 2010 9:58 am
The affordability calculations required by the FSA are laughable and leave all lenders wide open to manipulation. The trouble is that personal expenses have to be an assumed number unless we start asking for supermarket, petrol and clothing receipts. The fact is that the world and his wife will be feeding themselves on 50p a day and won't buy clothes or washing powder or soap, or shampoo etc. I also wonder how many people who are trading up will know the xact amount of the council tax at the new property, or the energy comsumption or the water rates etc. Any affordability calcualtion therefore turns into best guess. And that's the bottom line - income will become best guess and how long will it be ebfore some idiot comes up witha generic household cost for every borrower based on some specicious research. We all know that the market is cyclic and that in 3 years time the Regulator will settle back into the usually torpid state until the next crisis when they have to be seen to be doing something. We all also know that some active mind is already working on how to pander to the new Regs without actually taking them seriously.
It's the usual 'don't we look active - it will never happen again# syndrome but I would lay odds on another mortgage market meltdown within the next ten years becuase lessons are never properly learned and some idiot will relax and relax and relax criteria.
The specialist sub prime, self cert etc lenders have been forced out of the market by their own poor practises but those that adopted traditional practices still survive. Why try to kill them off by making a proven system defunct. The lunatics really do run the asylum!
Unsuitable or offensive? Report this comment
Anonymous | 20 Jul 2010 3:31 pm
At a cost of £3 - £18 per mortgage, lenders seeing proof of income is value for money.
As to underwriting solely on affordability - this has been tried before and the result was higher mortgages than normal / reasonable being produced by affordability calculators in a low interest environment.
A return to sensible underwriting with reasoned arguments and documents supporting the mortgage requested makes more sense in the long term.
Unsuitable or offensive? Report this comment