Meanwhile, a survey conducted by the Intermediary Mortgage Lenders Association (Imla) reveals the perceptions of both lenders and brokers on the first six months of the new mortgage regime. The Chart shows the percentage of brokers that agree with certain statements. For example, the biggest differential is over how many more people are being turned down because of affordability checks against higher interest rates, so called wstress tests. Imla found that 63 per cent of brokers believe that significantly more people are being turned down because of affordability checks against higher interest rates, but only 15 per cent of lenders believe that is the case.
Brokers’ view
As the association comments, the difference of perception reflects the fact that lenders are likely to be reporting on trends within their own organisations, while brokers have a view across multiple lenders. They are also likely to have advised borrowers not to submit an application for fear they would fail to meet lenders’ criteria.
Giving a list of various types of borrowers, the association’s survey asked brokers and lenders which were most badly affected as a result of MMR changes. The list included the self employed, adverse and high loan-to-value borrowers. Again lenders and brokers had different perceptions of who was most affected. However, many of the categories of borrower that Imla listed are likely to be so-called “mortgage prisoners”. These are existing borrowers who could have difficulty obtaining the mortgage they have today because of the stricter lending criteria, particularly with regard to affordability.
In finalising the MMR, the FCA carefully put in place a set of transitional arrangements to aid these “mortgage prisoners”. Under these arrangements, provided these borrowers have a good payment record and are not looking to increase their borrowing, lenders are at liberty to dispense with the new affordability rules to allow borrowers to move to better deals. However, the FCA has noted that lenders are exercising their liberty not to apply the transitional arrangements, leaving some borrowers sitting on more expensive standard variable rate deals and unable to move to cheaper deals.
Charles Haresnape, Chairman of Imla, was adamant that the trade body both supported the arrangements and believed they were being used by members where necessary. “Our stance is we believe lenders should offer those arrangements unless there’s a specific reason why they can’t. We believe they should be maximised for the benefit of the borrowers who otherwise would struggle to get mortgages placed,” he said.
Anecdotal evidence
However, he seemed baffled at the suggestion that lenders are not using the arrangements. He suggested that in some cases there might be confusion about whether lenders are using transitional arrangements or whether there are other reasons why the customer cannot get the loan. Ultimately, however, he felt that the anecdotal nature of the accusation against lenders made it difficult to see whether there really was a case to answer. He added “It would be helpful maybe, if the regulator has some concerns, that they were more specific.”
He has a point, as the FCA has yet to spell out specific cases where transitional arrangements have not been used when they could have and has simply promised to keep an eye on the situation.
However, while it is easy to view lenders as overly cautious and unhelpful in light of this accusation, one of the CML’s conclusions on its survey may provide a more sympathetic perspective. It says about borrowers, “Of those that expect to move into financial difficulty, our survey struggles to shine a light on specific characteristics which may make them stand out.” It points out that lenders face a similar challenge, which is why they are looking at ways to identify ‘at risk’ households on their books.
In other words, it’s going to take longer than six months before things bed down and everyone becomes more accustomed to the new regime. Ultimately, the pendulum has probably swung too far and the market will just have to wait for it to swing back again.
