The Financial Conduct Authority (FCA) has today unveiled proposals to give lenders more flexibility when assessing mortgage applications as part of its ongoing review of mortgage lending rules. Rob McCoy, senior product & business manager at TMA Club, has commented on the proposals.
“The FCA’s mortgage rule review is a welcome piece of work, and very much in step with the government’s broader growth agenda. The regulator is asking itself an important question: where has the pendulum swung too far, and where can rules be made more proportionate without compromising consumer protection?
On interest-only, the answer is fairly clear. The post-financial crisis tightening was necessary, as these loans were widely sold to borrowers for whom they weren’t suitable. But the rules that followed cast the net too wide, and a generation of borrowers who could manage an interest-only mortgage responsibly have effectively been locked out.
The FCA’s tiered approach is sensible, calibrating the requirements to the level of risk, rather than applying the same test to every interest-only borrower regardless of their equity position.
Across the market more broadly, lenders have been quietly loosening their criteria in recent years, particularly around credit impairment. This paper gives them the room to go further still.
The proposals on irregular income are also significant for brokers. Self-employed clients and contractors are consistently underserved relative to their share of the workforce, and clarifying that lenders can work with non-monthly payment schedules and a broader range of income evidence should open up more options for that group.
But product innovation of this kind takes time. Lenders’ systems are largely built around monthly payments, and adapting them requires real investment.
These proposals lay a solid foundation, and the direction of travel is right. They won’t lead to wholesale changes overnight, but as lenders adapt their systems and risk appetites evolve, brokers and borrowers should begin to see the benefits come through.”
