If the FSA’s Mortgage Market Review proposals had been in place between the second quarter of 2005 and the first quarter of 2009, around 3.8m “good” loans would have potentially not been granted, according to the Council of Mortgage Lenders.
It says this equates to around 51 per cent of total loans in the period.
In an analysis, which was based on a one-off sample survey of loan performance from 26 firms as at August 1, 2009, the CML chose a select number of the regulator’s proposed measures – the ones it could reliably measure – to assess their affect on lending.
The proposals considered in the CML’s analysis were the requirements for lenders to:
- assess affordability by looking at income/expenditure
- assume the mortgages will be on a capital-plus-interest basis, even if it is to be interest-only
- apply a buffer to the affordability test for applicants with an impaired credit history
- apply an interest rate stress test, to assess whether the loan continues to meet the affordability test if rates rise
- assume a maximum term of 25 years for the loan, even if the actual term is to be longer
The CML found on the basis of affordability alone, 16 per cent of loans between the second quarter of 2005 and the first quarter of 2009 would not have been granted a mortgage.
The trade body says: “It is clear that the effect would have been to disallow many mortgages that have posed no problems for lenders or borrowers to date.”
It adds: “Indeed we welcome the Mortgage Market Review and accept many of the principles that it proposes.
“However, our concern is to make sure that the rules which are finally implemented are clear in their intended impact, practical in their implementation, and fair in their overall effect on consumers, intermediaries and lenders alike.”
In a response, the FSA says: “Our proposals are designed to address the major failures that have occurred in the mortgage market and we are actively consulting with all stakeholders to ensure we get the right solution.
“Our evidence shows that 16 per cent of borrowers are already financially overstretched and they are facing problems now as a result of their lenders’ practices in the past, not the MMR. But for now borrowers are also benefiting from historically low interest rates and house price inflation – which cannot go on forever.
“This is why it is imperative that we take steps to protect vulnerable consumers and ensure lenders are making responsible decisions.”