Leeds Building Society is to change the way it assesses how much to lend to customers in a move that will see it abandon income multiples.
From April 16, Leeds will only accept applications using its new affordability calculator. It will take into account income, other financial commitments and average household expenditure figures, provided by the Office for National Statistics, to reach a decision on the maximum loan amount.
Decision in principles based on income multiples offered up to and including April 13 will be accepted as long as the full application is made before close of business on April 20. However, Leeds’ website will be temporarily unavailable on April 14 and 15 while it updates its systems to accommodate the change.
Buy-to-let applications are not affected by the change and these applications will continue to be assessed on rental income.
As part of its final mortgage market review consultation paper, published in December, the FSA included a proposal which means lenders must ensure they take into account basic living costs and other loan commitments when assessing whether to advance credit. Leeds says its decision was not influenced by the FSA’s affordability proposals as part of the MMR.
Chadney Bulgin mortgage partner Jonathan Clark says: “Affordability calculators are a much more sophisticated way of working out whether a customer can afford their loan. And with the MMR stating lenders should assess affordability when lending, it is inevitable lenders will start to change the way they do things.”