The Mortgage Market Review describes the case for product regulation to ban non-income verified mortgages as non-controversial – a description that has left many market commentators slack jawed.
Their reaction is wholly understandable as controversy is precisely what these proposals will be courting if they are implemented, as will the decision to ban fast-track.
They could lead to increased costs and more paperwork as lenders are forced to collect and case.
And it could also lead to slower mortgage offers as evidence of income will need to be checked and signed-off.
Another result of the proposals would be more cost and uncertainty for self-employed borrowers or those with multiple or unusual sources of income as they would have to wait to find out whether the evidence of income they have submitted is convincing enough to satisfy the lender’s underwriters.
Add to this the fact that more paperwork would have to go back and forth between borrowers, brokers and lenders on non-standard cases if lenders decide that the initial evidence of income supplied is not sufficient.
Lenders would also need to adapt their underwriting criteria to accommodate some borrower scenarios that would previously have been in self-cert territory.
Some borrowers would find themselves trapped with their expensive existing lender, which may no longer be actively lending, because the lack of a self-cert facility means they can’t find another lender that would be willing to take them on.
It is not only the decision to ban self-cert that will cause an uproar, as fast-track is also in line for the chop.
Brokers will be able to add value through their knowledge of non-standard cases and lenders’ criteria
Picture the scene – you have a customer who needs to borrow 1 x annual gross income on a 40% LTV mortgage.
They want to switch from one lender to another to get a cheaper deal, or stay with the same lender and move house, with no extra borrowing involved.
The borrower has no other debts, apart from the mortgage and a perfect payment track record.
Under the Financial Services Authority’s proposals, lenders would not be allowed to fast-track cases like this.
They would still need to obtain evidence of income and a full breakdown of outgoings, plus evidence that those outgoings are accurate.
Arguably, this would be a disproportionate requirement for cases in which affordability is not in doubt.
The unnecessary extra bureaucracy would hit consumers with delays, costs and hassle.
Nobody wants to take a huge step backwards to make the customer experience worse to cater for the minority who shouldn’t be taking out mortgages in the first place.
It has been said many times before but it is worth reiterating that now more than ever brokers will be able to add value through their expertise about which lenders will lend to particular borrowers with non-standard income sources, and also through their knowledge about the type of income evidence each lender will accept.
So the regulator’s supposedly non-controversial proposals will only increase the value of professional advice.