When combined with proposed restrictions on non-bank lenders and the intention to ban self-cert and fast-track, the Financial Services Authority’s wish to prescribe affordability assessments in detail will leave lenders little room for manoeuvre.
If the proposals in the regulator’s Mortgage Market Review survive the discussion and consultation process to become strict rules, lending conditions will be tighter than we’ve been used to for decades.
Clearly, a lot depends on the details of the elements to be included in the affordability calculator. For example, there’s plenty of room for debate about which spending should be included when deciding how much money is available to meet the monthly mortgage payments.
The discussion paper proposes a belt and braces approach which could severely limit borrowing capacity.
On the face of it the FSA does not seem to recognise that individuals can cut back on certain lifestyle expenditures when they take on a commitment such as a mortgage.
We may see consumers being advised to go away for a couple of months and then come back when their bank statements show they have cut their spending to levels that get them through the calculator.
Also, the proposed requirement on lenders to check evidence of expenditure through bank statements, for example, is likely to lead to extra cost and more time spent processing applications – not to mention the data security risks.
There could be duplication and contradictions if consumers are forced to go through two assessments
But at least if borrowers need to jump through more hoops to switch lender or move home they may be more inclined to turn to brokers for help.
A further implication is that interest-only mortgages are likely to decline in popularity if they can no longer be used to stretch borrowing limits.
The move to make lenders bear responsibility for affordability when they make lending decisions does not let advisers off the hook – not by a long stretch.
Despite the detailed assessments lenders will be required to carry out and the recognition that they are ultimately responsible the regulator is not proposing to scrap affordability requirements for brokers. Rather, it will leave them pretty much as they are now.
The rationale for this is that brokers can’t properly establish the suitability of mortgages without first assessing affordability.
They are the preferred face-to-face contact point for many borrowers, so are best placed to obtain information about spending and income, including documentary evidence.
All well and good, but there is potential for duplication and contradiction if consumers are forced to go through two detailed assessments. This hassle could be avoided if brokers were able to use the assessment process of whichever lender they recommend.
But this would mean an assessment taking place post-recommendation, which the FSA is likely to object to despite the fact that it should no longer be possible for an unaffordable mortgage recommendation to get past a lender.
It’s clear we are going to have to work with lenders and the FSA to ensure we don’t make life tougher for already strained customers.