The Mortgage Market Review places the responsibility for the assessment of affordability firmly with the lender. In other words, the lender must assess the likelihood of the applicant falling into arrears as part of the advice and underwriting procedure.
The industry should not need its regulator to remind it of this fundamental responsibility. After all, you do no favours by lending more than the borrower can repay.
By enshrining affordability in MMR, the regulator infers that lenders previously failed to do this. As a result, lenders have now moved from self-certification to questioning applicants on the minutiae of their lifestyles during endless interviews.
An interview is, and always has been, essential if proper advice is to be given and a proper assessment made, not only of affordability, but of the whole proposition – including reason for the application, attitude of the applicant towards their obligations under the loan, suitability of the property as security (LTV), the applicant’s occupation, borrowing history etc.
The main purpose of this is to form an opinion of the applicant as to whether they are a suitable borrower and possess a willingness to meet their obligations. Just as important is whether they will act in a reasonable manner if things go wrong. An apparently ideal borrower may fall on hard times, but with cooperation from both borrower and lender, the worst can be avoided and the matter resolved. The borrower who displays an irresponsible attitude at application stage will inevitably cause problems.
Much of the information obtained at interview will be later confirmed by the Valuation Report, bank statements etc. Judgement of character, however, is confirmed by receiving payments punctually over a period of time and the borrower’s continued cooperation.
So much relies on the ability of the adviser to assess the applicant. For this there is no formula, just the ability to judge character and attitude. These qualities are gained through experience following good examples and understanding that meaningful assessment goes deeper than getting correct answers on a questionnaire.