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Analysis: We need an MMR for consumer credit


Increasing numbers of borrowers have been unable to get a mortgage of the size they would like since the MMR was implemented last April, mostly due to stringent affordability checks. 

So how can it make sense that, the very next day after obtaining a mortgage, someone could run up debts, potentially of tens of thousands of pounds, on credit or store cards with interest rates of up to 30 per cent a year, with few or no controls in place?

This makes no sense on a couple of fronts. 

First, if someone has reached what is considered to be the limit of affordability for their mortgage, how will they afford payments on a credit card? 

Second, does this new credit card debt not then jeopardise the borrower’s ability to make repayments on the mortgage that has been so carefully costed out?

It is not even the use of credit that is the problem; it is the access to credit. An enquiry around the office reveals that some people have access to up to £50,000, or even £100,000, across various credit cards should they choose to use it. And if someone hits their borrowing limit, the usual response by the credit card company is to offer to extend that limit immediately to reward a “loyal borrower”.

Sometimes the credit or store cards are offered out or underwritten by the same lending institutions that declined a larger mortgage as unaffordable.

The FCA must make this its next area of focus. Otherwise, it will create a loophole that is open for exploitation.



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  • Tom O'Connor 21st January 2015 at 5:46 pm

    Toni’s article makes a lot of sense, there is a twin lane approach to consumer credit versus mortgage lending which needs to be addressed.
    I am obviously aware that the FCA now has responsibility for all lending, including consumer credit, and with the implementation of MCD next year, we will see further regulatory control on CCA lending where it is used for property purposes. The question is will lenders be prepared to offer this sort of lending given the costs which will be incurred complying with the regulations?

  • Chris Hulme 21st January 2015 at 5:46 pm

    Spot on Toni!! We see this every day of the week.

    Affordability Calculators “prevent” lenders from agreeing certain loan amounts/ monthly commitments so clients turn to the unsecured market where they are agreed in a heartbeat without any real consideration.

    Only this month a case saw Santander unable to lend an additional £16k on a clients’ mortgage to buy out the ex-spouse even though the new fixed rate reduced her committed mortgage payment. From there Nationwide and Sainsbury’s Bank both agreed a 5 year personal loan leaving the client with an overall significantly higher monthly commitment.

    OK so its not secured – but is that the be all and end all?

    Problem now is – what does the client do when she needs to look at the mortgage again? Hands Tied? Probably!!