Mortgages plc, the UK residential lender and wholly owned subsidiary of Merrill Lynch, is launching a new affordability based approach to underwriting, with a bespoke product range available to a limited number of its key intermediary and packager partners.
The range offers the only two year fixed rate product in the sub-prime market that is underwritten on an affordability basis.
The new range uses an affordability calculation based on income & expenditure there are no income multiples. Key features of the range include no higher lending charges on any of the products, and up to 95% LTV Full Status only.
It is available across the range, including Near Prime Plus, Near Prime, Super Light, Light, Medium, Heavy and Fastrack products.
12 month & 3 year discounted and 2 & 3 year fixed rates are available, many with no ERC overhang period. There is also 200 cashback available on the Heavy and Fastrack remortgages
Peter Beaumont, sales & marketing director at Mortgages plc, says: “This launch represents a massive change in our underwriting approach but we know the market is crying out for lenders to assess borrowing based on affordability rather than using income multiples.
“It has become increasingly evident that traditional income multiples based on gross incomes are inflexible for many applicants. Whilst multiples are still appropriate in many instances, affordability calculations are often a more realistic basis on which to assess an applicants ability to repay a mortgage.
“Our thinking is very logical: two borrowers with identical incomes may not be able to afford the same mortgage if one borrower has significant debts and high living expenses, and the other borrower is unencumbered by other debts and has modest living expenses.”
In 2003 Mortgages plc pioneered the concept of an affordability declaration, over a year before the introduction of FSA statutory mortgage regulation. The declaration, which acted as a sanity check to ensure borrowers could afford their mortgages even if interest rates rose in the future, acted as the catalyst for the development of affordability calculations for determining maximum loan limits.
Beaumont adds: “Affordability calculations are ideally suited to advised sales, where a professional intermediary can help an applicant calculate how much they can comfortably afford to repay each month. For many in the market this will offer a welcome alternative to self-cert for employed applicants, as not all advisers favour this approach.
“Mortgages plcs affordability calculation has proven popular with both intermediaries and borrowers during testing and we are now delighted to be rolling it out on a nationwide basis via a select number of our distribution partners.”