Mortgages  

CML calls for review of lending rules

CML calls for review of lending rules

The Council of Mortgage Lenders (CML) has challenged the Financial Policy Committee (FPC) to review its rules for borrowers, following criticism of the higher rate stress tests.

Although the current stress test requirement is three per cent, this rises to five per cent once the banks have added in their margins.

Earlier today, CML chairman Peter Hill claimed that this higher rate is "locking people out of the market", while one independent financial adviser described the rate as "totally unrealistic". 

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In an official statement, the CML encouraged the FPC to update both its stress test criteria and the 15 per cent cap on higher loan to income lending, in an effort to encourage more borrowing.

“We would like the FPC to review its housing tools, including the three per cent higher rate stress test and the 15 per cent cap on higher loan to income lending, not least because they were introduced in June 2014 when market circumstances were very different," said a CML spokesperson.

"We think there may be scope for the FPC to amend its requirements in a way that supports the domestic economy, while still meeting the original policy intentions. We are pleased that the FPC will be reviewing its overall strategy on setting policy on mortgage market tools this year.”

Last November, the FPC announced that it would conduct a 2017 review of its overall strategy on mortgage market policies.

According to meeting records published on 6 December 2016, these will include "establishing a medium-term capital framework for banks; ending ‘too big to fail’, including through development of the new resolution regime; and ensuring diverse and resilient sources of market-based finance."

Independent financial adviser Ruth Whitehead, director of London-based Ruth Whitehead Associates, called the current regulations "totally unrealistic".

"It's so difficult for people to because the eligibility criteria continues to get higher and it becomes harder and harder to borrow," she said.

"I think the consumer is being unfairly punished for the actions of the banks and stress testing is just one more flaming hoop for them to jump through.

"There's a lot of anger about it."

Despite the strict borrowing criteria, recent CML figures show that gross mortgage lending reached £20.4bn in December 2016, a four per cent increase year-on-year.