There have been some whisperings around the mortgage market that a number of lenders have begun to take a far more common sense look at their criteria and underwriting, rather than the ‘compliance to the nth degree’ approach that many favoured in the period immediately post-MMR implementation.
There’s no denying that securing finance has been far more difficult to come by since May for many existing and would-be borrowers, and if lenders are reviewing their systems and processes and choosing not to take a ‘one size fits all’ approach then this will be music to their ears of customers and their brokers.
I suspect however that this may be a particularly slow process not least because of the degree of automation most lenders’ have in their systems. We’ve heard a lot about the ‘computer says no’ approach to lending and this has clearly been evident over the past seven months. To review such criteria and affordability measures is not simply a case of flicking a switch; it may well require some significant work for many lenders who operate predominantly automated processing.
What may well ‘chivvy’ these lenders along however is the intervention of the regulator itself who has, on numerous occasions over the past few months, expressed a degree of dissatisfaction and frustration at what appears to be lenders dragging their feet and/or not keeping with the spirit of the MMR.
The transitional arrangements lenders have at their disposal would appear to be a case in point – they were written into the rules to allow lenders not to disadvantage borrowers who may be far better off away from their current mortgage deal but would not meet the new, stricter affordability criteria. Where that particular borrower was not borrowing any further money, the transitional arrangements were in place to allow the lender to move that borrower to another, cheaper deal but without having to show their ‘affordability workings out’.
Seems quite right and quite fair to me – indeed, it seemed fair to the lenders at the time who requested these measures were written into the MMR. There has been, however – as there so often is – a discrepancy between the written rules and lending in practice. Instead of borrowers being moved over to those deals, it would appear lenders have been covering their backs and making the individuals go through those affordability checks. The result has been that many borrowers have not been allowed to move, leaving them (quite bizarrely) in a worse financial position.
It will not take a genius to work out that this was not the FCA’s intention and, one suspects, that lenders who continue to work in this manner will soon feel the cold breath of the regulator on their necks pretty soon. However, lenders can really only be encouraged to change their ways in this area, and as lender trade bodies have pointed out recently, there appears to be a fear of retrospective action by the FCA should they come calling and find cases which fail affordability checks. The result is that the borrower is left between a rock and a hard place, and we are already hearing cases of borrowers being refused deals which are hundreds of pounds cheaper than, for example, the SVR they are currently on. An SVR rate they are currently paying each month with no issues on their repayment history. It doesn’t make sense.
It’s a rather sad state of affairs and I suspect something of an embarrassment to all concerned. What we should hope for is that lenders feel greater confidence in the FCA’s intentions in this area and that they can therefore relax their affordability checks for those borrowers who fit these transitional arrangements perfectly. No one expects the lenders to do this for other borrowers however in these specific cases the rules allow them to make their customers better off. If that’s not a reason to meet the spirit of the rules, then I don’t know what is.
Richard Adams is managing director of Stonebridge Group
