Mortgage brokers have deliberately not arranged insurance policies so that their clients will not be denied a mortgage on affordability grounds, Andy Coles has warned.
The new business director at Lutine said the affordability rules in MMR have been dissuading some advisers from selling related insurance until a mortgage has been completed.
He said: “Lenders are running scared of the regulations, and affordability is key now.
“If people appear to be tight on income, which people in the south east and London must be, that’s what some mortgage brokers are doing.”
Rob Sinclair, chief executive of the Association of Mortgage Intermediaries, said he has held discussions with the Council of Mortgage Lenders and the FCA about this issue.
He said: “This is something that has been debated with the FCA and the CML, but we see this as a storm in a teacup.
“If the customer’s affordability is so tight that you need to start postponing insurance, it is highly unlikely he would get through the lender anyway.”
Mr Sinclair added that the whole debate was a reflection of where the industry had ended up since affordability criteria tightened up after MMR was brought in.
He added: “The FCA rules says that if it is discretionary and if you can stop paying it if you get into financial difficulty, it is fine, but maybe some lenders are going too far.”
In July, the Fos warned of a ‘box-ticking’ approach among lenders following the introduction of the MMR in April 2014.
A spokesperson for the CML said: “Clearly, consumer needs for different financial products will vary depending on their individual circumstances, and brokers are there to help customers understand and meet those needs with the right kind of products.”
Regulator view
A spokesman for the FCA said: “Under our rules, only buildings insurance premiums need to be factored into affordability assessments. Other insurances are discretionary, but it is ultimately down to the lender to decide whether to include additional regular costs into affordability checks.”
