The FSA says intermediaries will only be expected to check if a customer fits the lenders credit criteria but will not be stopped from conducting further affordability checks.
In its final consultation paper, published today, the regulator removed prescriptive proposals from its earlier distribution and disclosure paper which stated intermediaries should be limited to checking if a customer fits a lender’s criteria.
The FSA says respondents to the paper had pointed out intermediaries would continue to obtain affordability information regardless of whether the rules required them to.
Now the FSA says it has agreed on a “general requirement”, as opposed to limiting rules, for intermediaries to check to see if borrowers fit a lender’s criteria.
The FSA has also changed its affordability expenditure proposals, as respondents found its rules around the assessment of total expenditure were “too prescriptive and over-engineered”. Respondents argued the rules did not take into account a person’s ability to manage expenditure.
The new rules state lenders should, as a minimum, take account of other debt commitments and “basic essential expenditure”, like heating, water and council tax bills, as well as other expenses that provide a basic quality of life.
However, it has kept its requirements for lenders to check income in every case.
The FSA will still require lenders to carry out interest rate stress tests on customers but has ruled out forcing lenders to use FSA predictions. Lenders must instead be able to prove they have used independently published projections based on market expectations, like the forward sterling rate published on the Bank of England’s website.
The FSA estimates the affordability rules will only affect 0.04 per cent of borrowers in the current subdued conditions, increasing to 3.6 per cent of borrowers in a boom period.