Mortgages PLC says affordability calculations hold the solution to the continued problems of self-cert mortgages being apparently inappropriately sold to employed applicants.
MPLCs comments follow the findings of a Financial Service Authority mystery shopping exercise, in which 47% of cases reviewed failed to demonstrate affordability had been appropriately assessed by intermediaries and 36% of cases failed to give a reason (or it was unclear) why a self-cert mortgage had been recommended.
Peter Beaumont, sales and marketing director at MPLC, says: “Although poor record keeping may account for some of the FSAs findings, it is also possible self-cert mortgages are continuing to be inappropriately recommended to employed applicants in a small number of instances, because they enable borrowers to obtain larger loans than they could using traditional income multiples.
“Indeed, the FSAs own investigations unearthed three brokers who were prepared to discuss with clients how they could inflate their salary.
“If gross income is the problem, affordability calculators are a potential solution. Borrowers who are unencumbered by large amounts of debts and who have modest living expenses, can usually borrow significantly more using an affordability calculation than traditional income multiples would permit.
“There is no need for intermediaries to fudge income figures and put their future livelihoods at risk. If affordability calculations still dont provide a solution because of the high level of borrowers existing debts, then quite frankly the intermediary should not be recommending a loan for the amount requested.
“If bad practices continue to be unearthed by mystery shopping exercises it could be the death-knell for self-cert, which would be a desperate shame because, if used responsibly, self-cert has a valuable role to play in the mortgage market.”
MPLC introduced its affordability calculator in January 2005. Affordability calculations shift the emphasis away from gross income and onto net disposable income, which is a far more significant indicator of a borrowers capacity to meet their monthly mortgage repayments.
MPLCs online system, currently in extended pilot and due to be launched early in 2006, will provide brokers with access to products using an affordability calculator or traditional income multiples.