Natwest has confirmed that it is applying a tougher approach to affordability tests than that demanded by new mortgage market rules that come into force this weekend, with clients facing earnings assessments when moving home.
Yesterday (24 April) FTAdviser reported on adviser concerns that many lenders may be going beyond requirements to conduct more stringent affordability tests, as required by the Mortgage Market Review which comes into force on Saturday.
Bolton IFA Philip Dodds cited one case involving a couple in their 50s that are attempting to downsize their home but face having to pay a £5,500 early repayment charge to escape from their two-year fixed rate mortgage with Natwest after failing an affordability test.
This is despite the new rules specifically stating that porting a mortgage or otherwise seeking to amend a loan when moving house would not trigger the need for a new affordability test where the outstanding loan was not being increased.
The couple in question have a 10 per cent loan-to-value mortgage on a £1.7m property and were looking to port their mortgage as they downsize to a £900,000 home.
Natwest was not able to comment at the time of publication, but has now confirmed to FTAdviser that it does require clients porting their mortgage to undertake affordability assessments and that this is essentially treated as new business under its new approach.
A spokesperson said: “Whether a customer is new to the bank or moving home there is a requirement to meet our affordability criteria. For existing customers moving home we offer some flexibility under the mortgage market review transitional rules.
“We have a process in place to approve any exceptions on a case by case basis and this does not pose any delay to the application.”
Some in the industry have blamed the apparently overzealous actions of lenders on the combination of a strict tone but a lack of clarity from the regulator on how and when lenders should test affordability.
Mr Dodd said he has heard evidence of other banks undertaking similar activities and has suggested more than £200m in early repayment fees could be triggered by the banks’ approach.
In the case involving Natwest, Mr Dodd has claimed the couple failed the assessment despite having around £74,000 in annual income from properties, a property development company, a limited company and investment gains, in addition to a £600,000 self-invested pension.
He says this is because of a “box-ticking” approach being applied across the sector that disregards income from businesses or assets with less than three years’ receipts and that does not count pension assets.
The spokesperson for Natwest said the bank does offer flexibility on a case-by-case basis and that it would seek to contact the customers to offer help if possible.
The FCA’s final mortgage market rules state: “... an affordability assessment is not required for an existing borrower, staying with their existing lender, if there is no increase in the current amount outstanding... unless there is a material impact on affordability. This is the case whether the transaction takes effect through a contract variation, or a new regulated mortgage contract.
“So, for example, an affordability assessment will not be required for a change that does not have a material impact on affordability, such as a rate switch or retention deal; or where the borrower is porting their mortgage or moving to a new property.”
Mr Dodd said: “Banks are over-interpreting the rules. The main issue the couple have experienced is box-ticking - it is a degree of inflexibility that will give the market indigestion. No matter how we go, it is impossible to show discretion.”
