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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.

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  • James Hall 3rd November 2010 at 10:51 am

    I dont understand the motivation of organisations like the CML and FSA. Lenders should be allowed to make their own decision on lending criteria and the public maked their decisions on what risks they want to take on things like interest only etc. The way to prevent another banking crisis is not to try and micromanage lenders, brokers and customers. The FSA should concentrate on putting a framework in place to make sure lenders have sufficient controls in place to run the business in a sound manner but then let the lenders make the decisions within that framework as to what business they are happy to do.

    If a lender is happy to take a 75% LTV interest only self cert deal for someone with previous difficulties let them do it! That wasnt what brought the financial system to its knee’s on its own. That type of lending can work for a lender if the risk is priced properly, and that is what stopped happening.

  • Neil Bellamy 3rd November 2010 at 10:36 am

    perhaps all sides are becoming hysterical? – anyone who is in a affluent position would love the FSA MMR rule changes, perhaps one commentor above is in this position, and wishes to make a killing in the housing market at other peoples expense?
    The proposed changes will have little, or no impact if inflation spirals out of control, perhaps this may start in a few years time, when quantative easing has been fully spent. Perhaps the affordability stress test should be on rates betwenn 10-15%. Yes that would be crazy, and of course would seriously damage the industry.
    Personnally I would like to see some serious focus on existing mortgage holders – to give any one with a mortgage the opportunity to act now. By this I mean preserve Interest Only on a sliding scale to full repayment within ten years, allowing a less painfull transition. For borrowers who have always kept their mortgage payments up to date religiously, to waive all existing ERC’s, and affordability tests / evidence of income temporarily, allowing them to renegotiate onto medium to long term capped, or fixed products.
    What would this achieve = keeping more people in their own homes!
    Failure to act now could mean we reach a critical mass of repossessions within the near future – enough to bring this over capitalistic country to its knees, and back to bartering. Hmmm the affluent would not like that would they!
    It has been said many times recently – the lenders are regulating themselves to a large extent – FSA leave them alone or you will cause Armageddon in the UK…

  • Luke Atkinson 3rd November 2010 at 10:14 am

    I must be missing something here.

    The CML, i.e. the trade association for the residential mortgage lending industry, have stated that 45% of mortgage borrowers this year would have been blocked by MMR???

    Why would the FSA want to even consider the implimentation of MMR if this is the case?

    This country needs mortgage lending and without it not only the housing market but many other industries come to a halt, many other areas are affected by the supply and demand for housing which ultimately is driven by the availability of mortgage lending.

    The FSA needs to wake up and listen to bodies like the CML and the AMI otherwise this paper will result in a catstrophic reduction in lending that will drive us back into another credit crunch.

    The saying cutting off your nose to spite your face comes to mind, perhaps someone should remind the FSA that they are funded by levies on financial firms?

  • Keith Butler 3rd November 2010 at 10:09 am

    The CMLs comments are becoming increasingly hysterical. The FSAs affordability proposals are just plain sensible – they want to eradicate irresponsible lending.
    The CML saying that 11% of lending would be effected just shows the extent of the problem.
    The CML are out of touch with public opinion and, increasingly, out of touch with the respectable side of the mortgage industry.

  • Mark Robson 3rd November 2010 at 9:46 am

    I am pleased to see the continued way the CML are highlighting and taking the real issues to the FSA. The fear factor is increasing out there which will simply destabalise the market further. Banner headlines today regarding potential interest rate rises and the havoc that will cause. We need positive moves by the govt,FSA and lenders to reassure consumers and bring some optimism to the market. I fear we are some way off that and there may be more carnage ahead. More support for the CML please.

  • ian 2nd November 2010 at 6:44 pm

    It should be up to the lenders how and who they lend their money to. So long as the clients understand what they are getting into. The mortgage market will never recover while the FSA find more stupid ways to justify their pathetic existance. The sooner 2012 comes, the better!!!