Concern over Preferred’s online calculator

Preferred has sparked concern over the large amounts its online affordability calculator is offering borrowers.

Preferred removed income multiples from its product range last week, calculating loan amounts based solely on affordability criteria.

But a source says: “The amounts it shows customers can borrow are quite large, based on relatively small earnings. It’s a bit of a worry as borrowers could end up living on baked beans. But this may not be the case when proper calculations are carried out.”

The Preferred calculator shows a customer earning a basic salary of 18,000 with 8,000 of unsecured debt would be able to borrow 73,385.57 over 25 years at 5.14%, making the monthly payments 435.

But when the same details are typed into Nationwide’s affordability calculator, the result is that the lender is unable to lend the customer anything.

James Cotton, mortgage specialist at London & Country, says lots of lenders use affordability calculators and that it shouldn’t make a difference whether a case is sub-prime or prime.

He adds: “It’s good that lenders are using such calculators and helping people borrow a bit more money, but it has to stop when people can’t afford it.”

BM Solutions also lends on an affordability model which looks at borrowers’ credit and debt histories and the results are as prudent as with traditional income multiples. But it does not have an online calculator, arguing that they can be fiddled to lend any amount.

Preferred says that because it is a sub-prime firm the amounts its affordability calculator shows it will lend will be slightly higher than other lenders.

Roger Taylor, director of sales and marketing at Preferred, says: “Higher lending figures from the online calculator are a reflection of our move from income multiples to affordability. We would expect to find that loan amounts are higher than lenders that still base their calculations on income multiple models.

“But this calculator is just an indication of the lending levels you might expect from Preferred, not a complete illustration.”