CML says 45% of lending this year would have been blocked by MMR

The Council of Mortgage Lenders has predicted that 45% of borrowers would have been blocked by the Mortgage Market Review this year if it had already been implemented.

Last month CML research revealed that 51% of borrowers may have been refused a mortgage had the MMR between Q2 2005 and Q1 2009.

But in its News and Views it says the impact on this year would be less and affect 45% of borrowers or 260,000 people.

If all loans this year had been assessed on the basis of capital-plus-interest payments, a total of 20% could have been affected, rising to 37% of borrowers who took out an interest-only loan in this period.

And had affordability been assessed on the basis of a 2% interest rate stress test, a total of 32% of borrowers this year could have been affected. 

It also claims that the FSA’s core income-expenditure affordability assessment on its own could have affected 11% of borrowers this year, compared to 16% between 2005 and 2009.

This year’s figures are less because the FSA made it clear that additional proposals aired in the MMR – over and above its income-expenditure affordability assessment, on the impact of which we broadly agreed with the regulator – are not fully formed in its thinking.

The extra measures include assessing a borrower’s ability to repay a mortgage on a full capital-plus-interest basis, even if some or all of the loan is interest-only.

The FSA says it would assess the ability to repay on the basis of a maximum term of 25 years, even if the actual repayment period is longer than this, the CML says the impact would be minimal.

It would also apply a ‘buffer’ to the affordability test for borrowers with an impaired credit history, the FSA’s proposal was to reduce the assessment of disposable income by 20%.

And finally it will apply an interest rate stress test to assess the ability of the borrower to pay at higher rates.

The CML asserts that the incremental effects of some of the FSA’s proposals could still have had a major additional impact on current lending.

It suggests that these proposals are individually and collectively unnecessary to achieve the FSA’s policy objectives.