Lenders urged to re-examine niche criteria as MMR clarifies guidance

Brokers are calling on lenders to review their criteria for niche areas such as interest-only, following publication of the Mortgage Market Review final consultation paper last month.

Many lenders have restricted their criteria on interest-only and lending into retirement over the past 18 months after strict proposals were made in previous consultation papers, some of which have now been scrapped.

Ray Boulger, senior technical manager at John Charcol, says clarity provided by the latest paper could allow lenders to relax their rules slightly in niche areas.

He says: “Lenders have claimed they are under pressure from the Financial Services Authority to make criteria changes before the MMR is implemented but when we have asked the regulator, it says there is no pressure.

“Now some of the earlier proposals have been scrapped, lenders can no longer hide behind the regulator as an excuse for some of their lending policies.”

In an earlier paper the FSA proposed that all interest-only loans should be assessed on a capital repayment basis, but the final paper says this no longer needs to be the case provided the consumer has a credible strategy to repay the capital at the end of the term.

The regulator has also tempered an earlier call for lenders to assess income into retirement. In the final MMR paper it says it recognises the difficulties this may pose in practice, and is asking that lenders adopt a proportionate approach to assessing income beyond the state pension age.

David Sheppard, managing director at Perception Finance, says lenders are likely to revisit their policies on niche areas now that the final consultation paper has been published. He says: “I certainly hope lenders re-examine their criteria on interest-only, while lending into retirement is another area that some firms may look at.

“For example, NatWest has a far more stringent application process for borrowers aged over 65, which seems bizarre at a time when the government is increasing the state pension age, considering Royal Bank of Scotland is state owned.”

Barclays, Nationwide and RBS say they have no plans to alter their lending policies but will review them when the final MMR rules are published.