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Lenders jump the gun on proposals in MMR

Lenders have been accused of implementing Mortgage Market Review proposals too soon after the regulator branded one of its initial proposals inappropriate.

Last week Lord Turner, chairman of the Financial Services Authority, told MPs that in retrospect, a requirement for lenders to take into account spending on items such as clothing and recreation into affordability assessments is impractical.

This was included in a 2010 MMR consultation paper, but in the final paper published in December 2011, the proposal was modified to cover only committed and essential expenditure such as utility bills.

But last month Abbey for Intermediaries changed its expenditure assessment to require all customers to fill out regular and non-regular monthly costs, with the latter category including spending for religious festivals and holidays.

Turner told a Treasury Select Committee hearing: “We initially put forward a set of proposals on how to calculate whether a mortgage is affordable which were theoretically desirable but too complicated to put into place. They required asking questions about borrowers’ expenditure which were too detailed.”

Ray Boulger, senior technical manager at John Charcol, says it is likely Abbey started to work on the change before the final paper was published.

He says: “Any IT change will take a long time to implement and lots of lenders have introduced policies based on the initial MMR papers despite the fact they were only consultations.

“Turner’s comments could be interpreted as saying that Abbey’s new policy is inappropriate although he may not have knowledge of firms’ lending policies.”

David Sheppard, managing director of Perception Finance, says: “Many lenders have decided to implement changes from earlier papers rather than waiting and having to rush through lots of changes at once.”


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