The FSA’s responsible lending proposals requiring income verification and affordability checks for all mortgages could mean lenders are hit with annual costs of up to £20m.
A cost benefit analysis of the FSA’s proposals was included as part of the consultation paper published by the regulator today.
The FSA commissioned a company called Oxera to estimate the compliance cost to lenders of implementing the FSA’s proposals on income verification and affordability.
Oxera estimates that the average total additional costs to lenders would be between £3 and £12 per mortgage sale.
It works this out on the basis that lenders would pay an extra £4.50 per mortgage needing proof of income, an extra £18 per mortgage where income verification is more complex, and an extra £17 per mortgage where affordability would be assessed.
The average cost takes into account that only a certain proportion of mortgages will be affected by the proposed rules, as the majority of mortgage applications are already submitted with proof of income.
The paper says: “Oxera estimated the total cost to industry of implementing the affordability requirements to be in the region of £3m to £15m. The total ongoing costs for the industry to maintain compliance with these requirements is estimated to be in the region of £5.8m to £20.3m per annum.”
Meanwhile the FSA estimates its own one-off costs for implementing the plans to be around £275,000.
The cost estimates affect lenders rather than advisers as the regulator has ruled that ultimate responsibility for affordability lies with the lender.