Lenders have been urged to be more open about their underwriting criteria, after Precise Mortgages revealed last week that it will be stress testing borrowers.
Precise has launched its first range of residential mortgage products that will require an affordability stress test to 2% above the reversionary rate.
Andrew Montlake, director of Coreco, says it would be helpful if other lenders were as open about their underwriting as Precise.
He says: “It is sensible for lenders to stress test borrowers, especially on tracker rates. The next rate change is obviously going to be up and it is probably going to rise by about 2% in the next two years, which will affect borrowers.”
Precise’s reversionary rates range between 5.99% and 7.59%.
It is offering a three-year capped tracker at an initial rate of 4.99% at 70% LTV with a 1.5% product fee. On another of its 70% LTV three-year capped trackers, it will allow one default in the past 12 months, one County Court Judgement and one arrear in the past 36 months. It requires proof of income on all loans.
Alan Cleary, managing director of Precise, says: “All lenders should be stress testing affordability already as there are principles in Mortgage Conduct of Business rule that encourage lenders to take into consideration future rate changes.
“With rates so low, any lender that did not stress test affordability would be in a difficult position regarding how they were complying with responsible lending.”