Affordability checks will not hit successful applications, say lenders

Almost three-quarters of intermediary mortgage lenders are confident the new affordability checks coming in as part of the Mortgage Market Review will not significantly reduce the number of people who successfully apply for a mortgage.

Research from the Intermediary Mortgage Lenders Association, published last week, found just 7 per cent of intermediary lenders expect significantly more people to be turned down for a mortgage because of new stress tests, which will examine whether borrowers can afford their repayments in the event of interest rates rising.

As part of the package of reforms, which will be implemented in April 2014, overall responsibility for checking affordability will rest with lenders. Lenders must also verify income in all cases.

The vast majority of intermediary lenders do not feel the reforms will significantly affect borrowers’ ability to obtain finance.

Around 73 per cent were confident this would not happen while 20 per cent of intermediary lenders said they were not sure.

However, while 34 per cent of brokers do not expect stress test to significantly reduce the number of successful mortgage applicants, around 44 per cent predict that considerably more consumers will find they are turned down.

Imla executive director Peter Williams says: “The MMR rules on affordability are built on common sense and are not too far removed from how many lenders already approach the issue. Recent experience has shown how important it is to ensure that mortgage borrowers can reasonably manage their commitments, not just now but in the future.

“We are in unfamiliar territory when it comes to current interest rates, so we have to be pragmatic and anticipate the likelihood of change. Falling numbers of arrears and repossessions in recent years show a responsible approach to mortgage approvals and lenders are working hard to ensure their existing tests meet the full MMR requirements without unfairly disadvantaging consumers.”

Over 300 intermediaries were surveyed, as well as Imla’s members.