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This week in Mortgages

Anyone with an interest in the mortgage market could not have failed to have noticed the wave of publicity that followed Abbey’s announcement earlier this week that it is to offer income multiples of up to five times a borrower’s salary.

Whether on TV, on the radio or in the newspapers, Abbey’s reputation took a bashing from the numerous debt ‘experts’ rolled out to have a pop.

While all lenders must ensure their policies and products do not foster a debt culture by encouraging people to borrow more than they can afford, Abbey is not known by many in the market as an irresponsible lender.

And while some are up in arms about the level to which it is prepared to lend, it must be stressed that it is by no means the first lender to stretch to such levels and will by no means be the last.

Another point that will not have been lost on the market is that simple income multiples are too simplistic a way with which to judge a lender’s criteria, anyway. Abbey will only lend to those that earn at least £60,000 a year and who have a high credit rating which will also typically mean those with a 75 per cent loan-to-value or lower.

Also, when affordability is taken into account, someone borrowing three and a half times income with three children and a raft of debts, may end up being more financially-stretched than someone borrowing five times their salary, childless with no debts. That’s why many lenders have moved away from income multiples to use affordability models, instead.

Another issue that will not away is retention. When HBOS launched its twin retention schemes with Halifax and BM Solutions in July, it was met with little dissent other than a small reference by accountancy firm KPMG, in a report for the FSA, that such schemes would fail as the regulator would take a dim view of anything that encouraged brokers not to shop around by paying proc fees on retained business.

When Money Marketing broke the KPMG story, the firm’s findings were derided by many as being wide of the mark, but the likes of GMAC and Edeus have since continually sought to bash retention schemes since, and the chorus of dissent is growing from a few sporadic voices to a growing crowd of opponents.

HBOS has pointed out on a number of occasions that securitising lenders such as the above pair will naturally criticise retention schemes as their business models could never allow them to happen.

But brokers have started to express concerns. Hamptons International Mortgages managing director Kevin Duffy said last month the market would shrink because of retention, while AMI director Chris Cummings this week warned brokers to make sure they shop around or receive a visit from the Ombudsman.

Society of Mortgage Professionals chief executive Richard Fox said consumers could be harmed by retention schemes at Money Marketing Live this week, and with that comment, the saga continues…


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