Giving evidence to a Treasury Select Committee hearing on the Mortgage Market Review today, FSA chairman Lord Turner admitted the regulator’s initial proposals on affordability assessments were impractical.
Last month, Abbey for Intermediaries changed its expenditure assessment to require all customers to fill out regular and non-regular monthly costs, with the latter category including religious festivals, holidays and miscellaneous goods and services.
Previously, Abbey would use Office for National Statistics data to obtain an average expenditure for a customer.
In its 2010 MMR consultation paper on responsible lending, the FSA stated that lenders should take into account expenditure on items such as food, clothing and recreation when assessing affordability.
But in its final consultation paper published in December 2011, the regulator modified that proposal to state that only committed and essential expenditure such as utility bills need be included.
Turner told MPs: “We initially put forward a set of proposals on how to calculate whether a mortgage is affordable which were theoretically desirable but just too complicated to put into place. They required a degree of asking questions about borrowers’ expenditure which were too detailed.”
He adds: “I think the proposals we have come up with have been hugely improved by that process of setting things out, listening to the industry and engaging in intensive debate.”